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Treasury Notes

 Geithner to Small Business Trade Organizations: New Health Care Tax Credit

By: Erika Gudmundson

Today, Secretary Geithner sent the following letter to a number of small business trade organizations to ask for their help in getting the word out about the new Small Business Health Care Tax Credit created in the Affordable Care Act.  Small businesses often face unique challenges to providing health coverage for their workers, and this new tax credit can help them overcome those barriers.

Secretary Geithner’s letter included an informative pamphlet for the organizations to send to their members to help them make the most of the new tax credit this filing season.  To learn more about the credit for yourself, you can download the pamphlet here


Dear Friend:

Thank you for your ongoing efforts to inform your membership and the broader small business community about the benefits provided to small businesses under the Affordable Care Act, including the Small Business Health Care Tax Credit.  As your members prepare their 2010 tax returns, I am writing to encourage you to help ensure that your membership is made aware of the credit, and offer some additional resources that may be helpful for small businesses seeking to claim the credit.

As you know, many small businesses want to provide health coverage to their workers but face extraordinary challenges in doing so, including premiums that are 18 percent higher on average than the premiums large businesses pay for the same coverage.  And many of those small businesses that already provide insurance find it increasingly difficult to afford as costs have risen.  The Congressional Budget Office estimates that the Small Business Health Care Tax Credit will provide $40 billion over the next 10 years to help eligible small businesses defray the cost of providing insurance to their employees – a substantial boost for these employers.

The credit is generally available to businesses with fewer than the equivalent of 25 full-time employees (including, for example, a firm with fewer than 50 half-time employees) with average wages of less than $50,000 for a full-time worker in 2010.  It covers up to 35 percent of health insurance premiums a business paid to cover its employees in 2010 (this percentage will rise to 50 percent in 2014). Tax-exempt (non-profit) employers who meet the same employee and average wage parameters are eligible for a credit of up to 25 percent in 2010 (rising to 35 percent in 2014).

As many as 4 million small businesses may be eligible to claim the credit if they contribute to the cost of health insurance for their workers, and extensive outreach is underway to reach this broad and diverse group of businesses.  After the Affordable Care Act was signed into law, the Internal Revenue Service sent out more than 4 million postcards to small employers to notify them about the credit.  The IRS has also spread the word at more than 1,000 tax workshops and small business forums and to over 175,000 tax professionals and small business owners through email newsletters. 

Though comprehensive data is not yet available, many small businesses are already responding to the credit by providing insurance.  For example, Blue Cross and Blue Shield of Kansas City has promoted the tax credit and enrolled more than 9,000 new members from 400 new employers; 38 percent of those employers did not previously offer insurance.

In addition to the tax credit, small businesses are set to benefit from other key provisions of the Affordable Care Act.  For example, full implementation of the health care exchanges in 2014 will further reduce costs for small employers by allowing them to pool their purchasing power and save on administrative costs.  Investing in preventive care, linking provider incentives to outcomes, and providing additional tools to control Medicare costs through the Independent Payment Advisory Board will further lower costs for small businesses.  And covering a greater share of the population will reduce the number of uninsured who end up in the emergency room, a hidden cost that is passed on to those with health insurance through higher premiums.  These changes are important not only for small businesses but for the broader economy as well. 

We will continue our efforts to increase awareness, and I strongly encourage you to help spread the word.  To assist in these efforts, enclosed is a short pamphlet to help your members make the most of the Small Business Health Care Tax Credit this filing season.  For additional information, the Administration has also launched, a one-stop shop for information on the implementation of the Affordable Care Act.

Thank you for all of your work on behalf of small businesses.  We look forward to working with you to continue to increase awareness about the availability of the Small Business Health Care Tax Credit as well as other provisions of the Affordable Care Act.



                                                                                    Timothy F. Geithner

Posted in:  Tax Policy
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