March 07--Thousands of small California businesses that provide health insurance to employees are eligible for a credit against their 2012 taxes, but a large number of them are unaware of the credit even as the March 15 corporate tax filing deadline fast approaches.
The tax credit, available since 2010 under the Affordable Care Act, is intended to induce small businesses to provide or maintain medical coverage for their employees. So far, the credit has been underutilized, according to the California Chamber of Commerce and Small Business Majority, a national advocacy group.
The tax credit is available, on a sliding scale, to companies that employ fewer than 25 full-time employees and have average wages of less than $50,000.
Across the state, more than 375,000 small businesses employing 2.4 million Californians meet the payroll criteria -- though not necessarily the health coverage requirement. That would qualify them for tax credits worth an aggregate $1.8 billion, according to a study commissioned by Small Business Majority and Families USA, a health care consumer group.
But a survey conducted 10 months ago by Field Research Corporation showed that 49 percent of small businesses that met the payroll criteria had never heard of the credit. Moreover, 75 percent of small businesses that would qualify based on their payroll status do not offer health insurance, the survey revealed. And another 9 percent either did not know if they were eligible or mistakenly believed that they were not.
Firms with ten or fewer full-time employees and average annual wages of $25,000 or less can get the maximum credit, which equals 35 percent of the premiums they pay or of the average cost of a similar health plan in the same region, whichever is less. The credit phases out completely for businesses with 25 full-time workers or an average annual salary of $50,000.
For companies somewhere in the middle of the range -- 17 or 18 employees and average wages of $35,000 -- the credit drops sharply to 5 percent and below. It hits zero for companies with 19 full-timers and average annual wages of at least $35,000.
The relatively rapid phase-out of the credit means that it is not particularly valuable to many small businesses, particularly in relatively high-wage areas like Orange County, said Kelly Moore, founder and owner of Moore Benefits Inc., an Irvine-based health insurance broker and administrator that employs six people.
"I got a $635 tax credit last year, and I had to pay my accountant $900 to get it," Moore said. "I thought, 'Oh, thank you, government.'"
Some small businesses, however, get tax credits in the range of $5,000 to $9,000, and one business owner -- from New York -- received $11,000, said Marcia Davalos, Southern California Outreach Manager for Small Business Majority.
"I can't say that these figures are representative of the entire population, let alone California -- but they are absolutely representative of real business owners in our network," she said.
For more information, visit irs.gov and search for "small business health care tax credit."
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