Companies with less than 50 employees are the cornerstone of our economy. In fact, these small companies make up over 90% of all businesses within the United States. They provide jobs, taxes, and investment opportunities to a large percentage of the population. So, how will healthcare reform affect the economic engine of our country? Let’s take a look at how small businesses may react to the healthcare initiatives as they currently stand.
How the Tax Credit Will Affect Small Business
The healthcare reform bill offers tax credits to small business to help offset the cost of insurance premiums. A business that covers at least 50% of employee health benefits, has 25 employees or fewer, and with individual wages less than $50,000 will be eligible to claim up to a 35% tax credit from the 2010 taxation year to 2013. It increases to 50% for taxation years 2014 to 2016. There are roughly 4 million U.S. small businesses that are eligible for the tax credit.
According to my calculations, the healthcare tax credit will have little to no affect on most businesses bottom line. If a company chooses to offer health benefits to employees, the credit will offset some of the costs involved. It may, however, increase employee morale and productivity. That alone makes the health benefits issue worthy of review.
Will the Small Business Exemption Stop a Company from Growing
Small businesses that are looking for growth opportunities will now have to consider healthcare costs before making such a move. If growth means exceeding the 50 employee threshold, losing the exemption in the process, then they will have to either offer health benefits or pay a $2,000 per employee penalty. In some cases, it may be more beneficial to stay small and forego growth. An alternative is to hold a number of companies that stay under the 50 employee threshold thereby retaining the exemption for each company.
In addition, by 2013 there will be a 3.8% income tax on unearned income for wealthy individuals to help pay for healthcare reform. This could have a negative effect on small business investors. Many small companies would not be able to survive without wealthy investors. If an investor deems his ROI to be insufficient after taxes, they may just pull up their stakes and move their money elsewhere.
There are many implications for small business to consider regarding healthcare reform. I’ll continue to keep you posted as more details become available.
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