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.

Obama’s health plan - will it work?

Where to start?  On June 3rd 2009 Obama announced that he had sent letters to key congressional leaders outlining the key provisions of his health care plan.  He wants legislation completed before the end of August.   Here is a link to a New York Times article about this: 

Obama Open to a Mandate on Health Insurance

I have hopes ….and concerns about this approach.

Hopes:

We need a healthy private sector insurance choice.  This seems to offer it……….If people are required to buy the insurance then everyone is covered  (just like car insurance - you drive you must be insured; otherwise it affects everyone else if you cause an accident - hey maybe we should have no fault health insurance.  If you hit me and I go to the hospital I still have to pay for it!)……..This forces everyone to be responsible…..If agents can still be given commission for signing people up Obama has an army of willing helpers to make sure everyone has coverage……public option can be valid alternative if priced right.

Fears:

lots of em….in Mass. the only state to implement this type of plan, there is an escape valve for those who say that they can’t afford it. 76,000 people have been granted the right not to have insurance.  That’s way too many.  There has to be a system to include everyone. … In Mass the goverment mandated the plan design and did not allow high deductible plans….That choice has to be allowed for people willing to take the risk…..The government, which means us - the taxpayers, needs to price (or fund) the public coverage appropriately so that they don’t come to the congress in a few years saying that they totally underestimated the cost of the plan and need lots more money.  We all will have been tricked into a costly national health plan.  If this is what we want lets all decide that we will pay the price — I don’t think we will.

that’s all I have time for now