Case Study Small Business Tax Credit

Small Business Health Care Tax Credit

The Patient Protection and Affordable Care Act

Vanilla LLC. - Case Study 2010

As part of the bill signed into law by President Obama on March 23^rd of 2010, small businesses may be eligible for a maximum 35% tax credit for companies that provide health insurance to their employees.

To qualify for the full 35% tax credit businesses must:

• Pay for at least 50% of the insurance premium.
• Have 10 or fewer full time employees (FTE’s).
• Pay out annual salaries of up to $25,000 per employee.
• Premiums must not exceed the average premium for small group market in each State set by HHS. (Connecticut average per employee premium small group market = $5419 Employee 13,484 Family annually or $452 and $1123 monthly.)
  

The 35% tax credit is a sliding scale as average salaries are above $25,000 to a maximum of $50,000, and number of full time employees exceeding 10 to a maximum of 25.

The following case study for Vanilla LLC will represent all of the above stipulations:

• Vanilla LLC has 8 full time employees and has an average annual per employee payroll of $24,500.
• 3 EE’s and 4 Families
• Total health insurance premium for Vanilla LLC is $70,200. $5850 per monthly

The company pays half of the health insurance premium totaling $35,100 - $2925 monthly

Vanilla Inc. will receive a tax credit for 2010 of $12,284.00. Vanilla LLC earns $100,000 annually putting the owner in the 28% tax bracket that also pays about 15% in social security taxes.

This tax credit of $12,284 is equivalent to a pre-tax savings of $21,551. $21,551 of earnings after taxes would come out to $12,284. The $35,100 of premium the owner has already paid out now costs him only $13, 550 or $1129 monthly. This represents a 61% savings in health insurance premiums.

Actual case study for Clean-All in Brookfield:

• Clean-All has 7 full time employees with an average annual salary of $31,000.
• Clean-All’s share of the premium equals $12,414 or $1034 monthly

After accounting for salaries exceeding $25,000, and adjusting for the maximum premium allowed, the total amount of tax credit for Clean-all in 2010 = $2156.

This tax credit of $2156 is equivalent to a pre-tax savings of $3782. $3782 of earnings after taxes would come out to $2156. The $12,414 of premium the owner has already paid out, now costs him only $8640 or $720 monthly. This represents a 30% savings in health insurance premiums.