ObamaCare Small Business Implications

ObamaCare small business implications will be quite visible when Affordable Care Act (Or ObamaCare) is going to kick in, in full swing starting Jan 2014.This new law requires small businesses of certain size to provide health care benefits to their employees. It provides tax credits as well as tax penalties to small business who do or do not offer health insurance options to their employees. You can also learn about Small Business Health Options or SHOP program here.

What ObamaCare Small Business Tax Credits Are Offered?

• Only small businesses who have not more than 25 employees and average annual wages of less than $50,000 per employee will receive tax credits (and that too only till year 2015) if they buy healthcare coverage for their employees from the insurance exchange.

• Between year 2010 through 2013:

• If an small business employer contributes at minimum 50% of the total healthcare cost or 50% of a benchmark premium cost, then a tax credit of up to 35% of its contribution toward the employee’s healthcare insurance premium will be provided.
• The full tax credit of 35% is provided to employers who have average annual wages of less than $25,000 per employee and less than 10 employees.
• The credit phases-out as small business number of employees and average annual salary increases.
• If a small businesses is Tax-exempt meeting and meets above requirement, then it is  eligible for tax credits of up to 25% of the employer’s contribution which it spent for the employee’s healthcare insurance premium.

•  Between years 2014 and 2015:

• If the small business contributes at minimum 50% of the total healthcare cost for purchasing coverage for its employees through the state health insurance exchange, then a tax credit of up to 50% of its contribution toward the employee’s healthcare insurance premium will be provided, . This credit will be available only for 2014 and 2015 and not for any subsequent years.
• The full tax credit of 50% is provided to employers who have average annual wages of less than $25,000 per employee and less than 10 employees.
• The credit phases-out as small business number of employees and average annual salary increases.
• If a small businesses is Tax-exempt meeting and meets above requirement, then it is  eligible for tax credits of up to 35% of the employer’s contribution which it spent for the employee’s healthcare insurance premium.

What ObamaCare Small Business Tax Penalties Will be Assessed?

Following penalties are assessed from small businesses effective Jan 1, 2014 for non compliance of Affordable Care Act:

• Small businesses who have 50 or more full time employees and who do not provide any healthcare insurance coverage to its employees, is liable to pay $2000 per employee excluding first 30 employees if at least one employee gets insurance premium credit by purchasing insurance from health benefit insurance exchange, .

• Small businesses who have 50 or more full time employees and who do offer any health insurance, is liable to pay lesser of $3000 for each employee getting insurance premium credit from insurance exchange or $2000 per employee excluding first 30 employees if at least one employee gets tax credit by purchasing insurance from health benefit insurance exchange, .

• Small businesses with up to 50 employees are excluded to pay above penalties.

• Businesses with more than 200 employees need to automatically enroll employees into health insurance plans offered by the employer. Employees may choose to opt out of coverage.

IRS Example of ObamaCare Small business Tax Credits:

Here are some example by IRS on how much tax credit a small business will receive.

Download (PDF, 15KB)

ObamaCare Small Business Expected Change Highlights:

Below is a summary of what tax credits and penalties are for small businesses due to Obamacare:

Now you have learned ObamaCare Small Business Implications, go here to learn about you local state health insurance exchange.