Health Insurance Articles
Understanding The New Health Care Tax Credit
2010-05-03
The new health care tax credit was passed as part of the healthcare reform. The legislation should not be confused with the other HCTC program initiated in 2002 designed for people transitioning from various trades. The health care tax credit was put in place to ensure the affordability of health care for small businesses. According to the Congressional Budget Office, administrative costs for providing coverage can total 30 percent of premium costs for businesses with fewer than 10 employees. The administrative fees for larger businesses with more than 500 employees are estimated to equal 12 percent of premium costs.
The HCTC program for small businesses is designed to lower the cost of health care for small business owners that provide coverage to their employees. There are certain eligibility requirements that a business must meet to be eligible for the credit. The employer must be currently providing health care coverage to employees. The employer must also be covering 50 percent of the costs of the health insurance coverage for the employees. The firm size is another factor that determines whether or not a business is able to take advantage of the credit. Businesses must have less than 25 full-time employees. An employer with 50 part-time employees will be able to receive the credit. The small business must also pay wages below the amount of $50,000. Both tax-exempt and for-profit firms are eligible to receive the credit, if the other requirements are met. The small business owner could save up to 35% with the HCTC credit. In 2014, the rate will increase to 50 percent. A firm is able to claim the credit for six years.
Employers are able to further verify whether or not their business is eligible to take place in the program by completing a questionnaire reviewing certain aspects of the business. The employer is asked to verify the number of full-time employees. The small business must then calculate the average wages of all of the employees excluding the owners. Then the business must verify that he or she is providing coverage at the single rate for at least 50% of the full-time employees.
The program is designed to help small businesses provide health insurance coverage for their employees by offsetting the costs with the credit. This important piece of legislation is estimated to save small businesses over $40 billion by 2019 on health insurance. It is estimated that there are over 4 million small businesses that will be able to take advantage of this credit. When smaller companies attempt to cover a small number of employees, the administrative costs associated in doing so are often quite high, which is why this measure was taken.
