What the healthcare law means for small businesses
Nearly half of all Americans in the private sector work for a business with fewer than 50 employees. These firms have always struggled to provide health benefits. And as healthcare costs have skyrocketed in recent years, many have been forced to drop coverage.
Today, fewer than half of firms with 10 employees or less provide health benefits, according to a survey by the Kaiser Family Foundation and the Health Research and Educational Trust.
The new healthcare law is designed specifically to help small businesses, although not all businesses will qualify for the aid. Here are some of the ways the law may work out for employees and employers:
If I work for a small business, will my employer have to provide health benefits?
No. Starting in 2014, businesses with more than 50 full-time employees will be subject to a complex set of new rules that would penalize some businesses that do not provide health benefits.
But employers with fewer than 50 full-time workers are exempted from these regulations.
What if the small business I own or work for wants to provide health benefits?
This year, a new tax credit will be available to help qualifying businesses offer their employees health insurance.
How does a small business qualify for the credit?
The credit is available to businesses that have fewer than 25 full-time employees and an average wage of less than $50,000 a year. And they must pay at least half of their employees’ premiums.
The size of the credit depends on how many employees work at the business and how much they are paid. The most aid goes to the smallest businesses with the lowest-paid workers.
For example, a company with fewer than 10 employees and an average wage of $25,000 a year would qualify for a credit worth 35% of the employer’s contributions to employees’ health plans. The credit is gradually phased out for larger small employers with higher-paid workforces.
The credit is less generous for small nonprofits.
What if I work for a small business that doesn’t offer benefits?
There isn’t much you can do right now except try to buy an insurance policy on your own.
That is slated to change in 2014 when states set up regulated insurance exchanges where insurers will compete to offer plans with benefits that will have to meet minimum standards. If you work for a small business that does not offer benefits, you will be able to shop for insurance on these exchanges.
The healthcare law also will allow small businesses with as many as 100 employees to enter an exchange, where employees could shop for coverage. Businesses that pay for a portion of their workers’ benefits will be eligible for a tax credit worth as much as 50% of their contribution.
Will there be any new taxes on small businesses to pay for all this?
Most taxpayers now pay 1.45% of their earnings to support Medicare, the federal health insurance program for the elderly. Starting in 2013, individuals who earn more than $200,000 and couples earning more than $250,000 a year will see that percentage rise to 2.35%.
Many small-business owners report their business income on their personal income tax returns. That could push some into the higher bracket, requiring them to pay the higher Medicare tax.
This is not expected to affect most small-business owners, according to the nonpartisan Joint Committee on Taxation, which estimates that 6% of them report incomes in the higher range.
Owners of tanning salons will contend with one additional tax. Starting this year, customers will pay a 10% tax on all indoor tanning services.
