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Mom-and-pops could be in line for tax credits via health care reform

Natalie Brown-Aiwohi, owner of Headshots Hawaii, might be eligible to receive several thousand dollars in federal tax credits this year under the new health care reform law, and even more in the upcoming years.


Two cases of benefits from the Small Business Health Care Tax Credit:


» Employees: 10
» Wages: $250,000 total, or $25,000 per worker
» Employer health care costs: $70,000
» 2010 tax credit: $24,500 (35% credit)
» 2014 tax credit: $35,000 (50% credit)


» Employees: 40 half-time employees (the equivalent of 20 full-time workers)
» Wages: $500,000 total, or $25,000 per full-time equivalent worker
» Employer health care costs: $240,000
» 2010 tax credit: $28,000 (35% credit with phase-out)
» 2014 tax credit: $40,000 (50% credit with phase-out)
Source: www.whitehouse.gov

Her business qualifies for a federal tax credit of up to 35 percent of the roughly $9,000 in premiums she pays each year for employee health benefits.

"Anything for small businesses I think is great because for us we suffer the most," said Brown-Aiwohi, who has 14 part-time workers.

Approximately 16,300, or 81 percent, of Hawaii businesses with fewer than 25 workers and average annual wages of less than $50,000 will qualify for the federal tax credit, according to a report released yesterday by Families USA, a national consumer health advocacy group based in Washington, D.C.

Of those, the report showed that 4,900 local companies with 10 or fewer workers earning an average annual wage of less than $25,000 qualify for the maximum tax credit of 35 percent this year. That increases to 50 percent of the premium by 2014.

"This should help small-business owners to make coverage more affordable," said Ron Pollack, executive director of Families USA.

The amount of the subsidies small businesses receive will vary based on the number of employees and the average compensation.

The tax credit was added to the health care reform law to lower the cost of offering health benefits to employees. Small businesses in many states are not required to offer health insurance.

In Hawaii the Prepaid Health Care Act of 1974 mandates that employers provide health insurance to employees who work 20 hours or more a week.

"For Hawaii, small businesses are finally going to get some federal relief from doing something they’ve already been doing all along — that’s a big difference from the rest of the country," said Jennifer Diesman, vice president of government relations at the Hawaii Medical Service Association, the state’s largest health insurer.

"I would call it sort of a double-edged sword," said Tim Lyons, executive director of Hawaii Business League, a small-business advocacy group comprising 1,200 members. "It’s an expense you already have that you may be able to offset with the tax credit. The other side of that sword is the amount of time and effort it takes to figure out, apply for and receive the credit."

Nationally, more than 4 million small businesses — or 83.7 percent — could qualify for the credit this year, according to the report. The Congressional Budget Office estimates the tax credit will save small businesses $40 billion by 2019.

Families USA calculated the number of small businesses eligible for the tax credit by sampling about 39,000 businesses from the U.S. Census Bureau’s Business Register.

To calculate estimated tax credits, go to smallbusinessmajority.org/tax-credit-calculator.


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