Tuesday, December 14, 2010

Small Business Health Insurance Credit Overview

The Small Business Health Insurance(SBHI) credit, which begins in 2011, is part of the Patient Protection and Affordable Care Act (PPA). It's purpose is to help small businesses be able to afford to participate in the new legislation.

For the purposes of the new bill a small business is defined as a company of 25 or less employees with average wages of less than $50,000. To receive the full credit a business may not have more than 10 employees or average wages of more than $25,000. The credit is reduced by any employees over 10 and the excess of average wages over $25,000.

For years 2011 and 2012, the credit is a maximum of 35% of nonelective contributions for employee insurance premiums and is included as part of the general business credit. For tax exempt businesses they may take 25% of contributions and use them against payroll taxes.

Beginning in 2013 the credit rises to 50% of contributions (35% for tax exempt employers). At that point the credit will be available for two consecutive years beginning with the first year the employer offers a qualified plan through a state insurance exchange.

As with any of the legislation associated with the PPA it's important to remember that this is as of right now, as what the future holds for the bill is still very much uncertain. For 2011, though, small businesses are being given an excellent incentive to provide health care and to reduce their taxes if they already are.


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