Treasury Notes

 Helping Small Businesses Provide Health Care for Their Employees

By: Emily McMahon

Today, new information was released about the number of small businesses and small business owners that have received tax credits under the Affordable Care Act to help cover the cost of health insurance for their employees.  The credits were available immediately in March 2010 when the law took effect, and they will remain available in the years ahead. 

The data released by the Treasury Inspector General for Tax Administration indicates that approximately 228,000 small businesses and small business owners received more than $278 million in these tax credits through May.  If you’re looking at this data, there are a few important facts to keep in mind:

Preliminary Data: The data released today is not complete for 2010, and is more than five months old.  Many small businesses file their taxes in September or October.  That means that a substantial number of employers had not filed returns when this information was collected, and an even smaller percentage of shareholders and partners of those employers had filed.  More recent data indicates that the total value of credits claimed is 56 percent higher than the early figures cited in this report.  About 309,000 small businesses and small business owners received $435 million in tax credits, and we expect this number to increase as more filings are processed. 

Missed Out on the Credit? Claim it Now: If you think you qualified for the tax credit in 2010, but have already filed your taxes, you can still amend your tax return for 2010 and claim this tax credit.  Click here for more information.  And the tax credit remains available in 2011 and the years ahead.

Higher Take-up in the Future: As we move forward, we expect more businesses to benefit from these tax credits.  Businesses generally make decisions about providing health insurance before the start of the year.  The Affordable Care Act passed in March of 2010, and some businesses may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010.  These businesses may be eligible to claim the credit on 2011 returns and beyond.

We’re also stepping up our already vigorous work to ensure small businesses know about this tax credit. Earlier this fall, the IRS announced a new round of outreach to small employers and the professional service providers they rely on.  This outreach campaign is focused on working with:

  • The tax software industry to improve access to educational information and to help alert small employers and practitioners when taxpayers may be eligible for the credit.

  • Insurance agents, brokers and carriers to help ensure that participants in the health insurance marketplace understand the features and benefits of the credit.

  • The small business and tax practitioner community to provide additional webinars and educational opportunities about the credit

Improving the Tax Credit: Our outreach efforts will make a difference, but we know we can do more to encourage small businesses to claim these tax credits.  The Administration is actively considering new policy options to strengthen this tax credit and make it easier for small businesses to receive these important benefits.  We look forward to working with small businesses and members of Congress to achieve this important goal. 

More Support for Small Businesses Through Health Reform: Tax credits aren’t the only way small businesses will benefit from health reform.  The law creates new marketplaces – Affordable Insurance Exchanges – where small businesses will be able to easily compare private health insurance options.  The Exchanges will promote competition and give small businesses more choices and more clout.  That’s why, based on CBO forecasts, the Administration estimates, that in 2014, small businesses could save up to $350 per family policy on average in addition to the tax credits.

More Tax Cuts for Small Business: The small business health insurance tax credit is just one of the 17 tax cuts for small businesses the President has signed into law to provide support for entrepreneurs looking to hire and grow.  For example, the President has temporarily eliminated capital gains taxes on key investments in small businesses – a measure he has proposed to make permanent.  He also fought for and secured 100 percent expensing, allowing two million businesses – large and small – to immediately receive a deduction for investing in equipment and machinery.

Emily McMahon is the acting Assistant Secretary for Tax Policy.

Posted in:  Tax Policy
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