Health tax credit irks businesses
More than four-fifths of small businesses in New York will be eligible for a health care tax credit, according to a report released by two advocacy groups.
But local small businesses said that the rules don't encourage growth and that other provisions in the massive health care overhaul that passed in March will cost them.
Small businesses that cover at least 50 percent of each employee's health insurance premiums will receive up to 35 percent of the average cost of a small group plan in the state as a tax credit. The business can employ up to 25 full-time equivalent people, including the owner, with average wages of less than $50,000.
"Health care is the single biggest issue facing small businesses in this country," said John Arensmeyer, founder and chief executive officer of Small Business Majority, which commissioned the report with Families USA. "In passing the tax credit, Congress sought to provide immediate benefits to small businesses starting this year."
Businesses with 10 or fewer employees with average wages of less than $25,000 are eligible for the full amount. Small Business Majority's website has a calculator for businesses to see what their tax credit could be.
The tax credits are available for 2010 through 2013. In 2014, each state will have exchanges, which will give business owners easy comparisons among and enrollment in plans. Then the credit will increase to 50 percent for those who enroll through the exchange for two years.
According to the report released Tuesday, 81.6 percent, or 285,000, of the 349,500 small businesses in New York are eligible for the credit and 78,300 businesses in the state are eligible for the full amount. Nationwide, 83.7 percent, or 4 million, of 4.8 million small businesses are eligible.
Families USA is a consumer advocacy group for high-quality, affordable health care, and Small Business Majority is a small-business advocacy organization. The Lewin Group analyzed the data on business sizes and wages from the U.S. Agency for Health Care Research and Quality and the U.S. Census Bureau. The group then used a model to calculate the employers who would be eligible for the maximum credit.
Stephen J. Conaway, owner of Thousand Islands Winery, Collins Landing, said the cap at 25 full-time equivalent employees could end up being a disincentive to growth. The winery has about 30 employees, though some are part-time or seasonal.
"We are very close to that threshold, so I could have potentially laid off some who work one or two days a week," he said. "I am trying to position the company to be able to participate in the tax credit."
Though he won't have to lay off anyone, he said, he'll be careful not to exceed the employment threshold.
He said he's concerned the mandate for all employees to enroll in health insurance will force some to enroll in the winery insurance, which could add cost.
And the law will pile up paperwork, too, which Mr. Conaway said will hurt the business. Beginning in 2012, the health-care legislation enacted in March will require all businesses and tax-exempt organizations to issue an IRS form called a 1099 to vendors from whom they buy goods totaling $600 or more annually. It is expected to help raise revenue for the new health measures through catching previously unreported income.
Previously, such disclosures were required for the purchase of services but not goods. The Taxpayer Advocate Service estimated the new requirement will affect 40 million businesses and other entities.
The winery will lose time and also seek out fewer businesses to buy items from to avoid the added burden.
"It's another huge administrative burden that we're not set up to do," he said. "I will limit the number of vendors I deal with so I don't have to send out so many 1099s."
The advocacy groups said the tax credit should encourage small businesses to at the least keep the health care they already have.
"Small businesses have a much greater difficulty providing health care for their workers than large businesses do," Ron Pollack, executive director of health care advocacy group Families USA, said during a conference call on Tuesday.
While 46 percent of businesses with nine employees or fewer provide insurance, that proportion rises to 72 percent for businesses with 10 to 25 employees and 95 percent for businesses with 50 or more employees.
"The discrepancy is because small businesses are at a distinct disadvantage," he said. "Much larger businesses with a larger pool have the ability to spread the risk."
Because of the law, the federal government has begun listing all available options for health care coverage by state on a website, maintained by the Department of Health and Human Services.
"The real question is actually going to be how many people will be aware of this and apply for it," Mr. Pollack said.
The Greater Watertown-North Country Chamber of Commerce is organizing a seminar for August on navigating the changes in health care. President and Chief Executive Officer Peter J. Whitmore said a significant portion of the membership could be eligible for the tax credits.
"Hopefully, there will be real savings," he said. "But when you do simple math, you wonder how it will get paid for."
The chamber offers insurance to members as the Greater Watertown Insurance Services Agency. Groups of members buy into the different plans, which lowers the price. It is unclear what the coming exchanges mean for programs like this one.
"The issue is going to be who are going to be the players in exchanges," Mr. Whitmore said. "The federal government would love to see the state administer exchanges through quasi-governmental agencies, like chambers, but there are also private entities and brokers."
Thousand Islands Winery has offered health insurance to employees for two years, though not all have taken advantage of it.
"Small businesses don't have a human resources department to go to," Mr. Conaway said. "This winter, I will become an expert in health care. That's not what I started a winery to do."
