35% Health Care Tax Credit is a sham

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35% Health Care Tax Credit is a sham
by Greg Galdabini
By U.S. Chamber of Commerce

The House was smart to pass legislation this week repealing the health care reform law enacted last year. The law is so flawed and complex that even a provision as seemingly beneficial to small businesses as the 35% tax credit for the purchase of employee health care has turned out to be major disappointment to some.

Here’s an excerpt from an article that reports on the experience of Alex Bryant, owner of Weld Direct Corporation in Florida:

Bryant employs 17 workers at an average salary of $41,000 a year; he spends a lot on health insurance.

“We spend close to $90,000 so I was looking for a sizeable tax credit to use in my 2010 taxes,” said Bryant.

However, “between the two deductibles, I end up with absolutely zero. Zero, Zero credit.”

Here’s more:

Thirty-five percent is the maximum credit, explained Mark Patrick, an accountant. “There are phase-outs above certain levels and certain payroll levels,” he said. “It is a challenging time for the small business.”

Patrick, a C.P.A. for Patrick and Robinson, does not work with Weld but blogs about the health care tax credit and advises small businesses.

He said if a business has more than 10 workers, the credit is reduced 1/15th of a percent per worker up to 25 workers, and for every worker who earns more than $25,000 the credit is reduced another 1/25th of a percent. Those are the phase outs, he said.

“The employers who have done some calculations are disappointed, it is either no credit or a small credit.”

Regardless of whether the tax credit is helpful to small businesses, it disappears two years after state health care exchanges are set up (in 2014). For businesses that benefit from the tax credit, what then?