One of the tax incentives under the Affordable Care Act that would allow small nonprofit businesses to claim a 35 percent tax credit in 2014 has been slashed by 8.7 percent, according to the Internal Revenue Service.
In addition, in the same week that the sequestration cuts took effect, the House of Representatives passed a continuing resolution to deny funding to key agencies associated with implementing their portions of the healthcare law.
Whereas the Democratic-controlled Senate continues to keep at bay repeated GOP attempts to withhold funding, the tax credit is a setback for proponents of the ACA, slated to take full effect in 2014 and celebrating the third anniversary of its signing Saturday. Currently, hundreds of business owners are trying to make decisions on whether to offer health insurance to their employees in order to avoid penalties under the law, or cut work hours and even jobs altogether.
Failure to offer affordable health insurance to employees could cost some business owners thousands of dollars in fines depending on whether those employees receive federal insurance subsidies.
“Shaving valuable dollars off a healthcare tax credit for small employers is more than disappointing,” said Rhett Buttle, national outreach director at the Small Business Majority, a research advocacy organization that supports the health law. Blaming lawmakers for their “self-imposed deadline,” Buttle said that many other critical small-business programs and incentives are also slated for cuts.
“This is not what small businesses need right now,” he said.
Kevin Kuhlman, manager of legislative affairs at the National Federation of Independent Business and an opponent of the ACA, is making time to educate small-business owners about the impact the law will have on their businesses. The NFIB is currently trying to repeal the law, and lobbying to gather at least 30 congressional co-sponsors.
Kuhlman said that though the law takes effect next year, small-business owners must grapple with very important decisions this year in preparation for the changes.
This year small employers must first determine whether their business has the potential to be penalized based on their employee size and the amount of hours each employee works. If employers offer health insurance, it must be affordable, or 60 percent of the actuarial value of the insurance must be covered by the employer. If employers do not offer insurance, they will be able to purchase policies through a new health insurance marketplace set to open next year, but employers should research what type of policies they may need for their employees.
The ACA states that certain employers who have fewer than 50 full-time employees, or FTEs, could qualify for tax credits, but for an employer, determining if they qualify can be somewhat confusing and they may need a tax preparer and even a health insurance agent to assist them.
“We’re hearing anecdotally from many members the grave concern and the tough decisions they are having to make this year,” Kuhlman said. “So [business owners] have to go through these complicated, arbitrary, time-consuming calculations about tracking [an] employees’ hours and it really takes away from the real crux of whatever [their] business is.”
In addition, Kuhlman is critical of the health insurance tax levied on insurance companies yearly by the federal government. He is certain that this tax will be passed on to consumers in the marketplace in the form of increased premiums.
“Ultimately the people who end up feeling the tax are the consumers who purchase in the market. It’ll be anywhere between $350 and $500 a year in increased premiums for families,” he said.
But Buttle said that 96 percent of small-business owners have below 50 FTEs and so will not be penalized. Of the remaining 4 percent, 96 percent of those businesses already offer health coverage.
“When you’re nearing that 50 threshold, you are already offering coverage, so its a very small number of employers who are sort of on that line,” Buttle said.
The Small Business Majority has been offering information sessions to employers, educating them about the law, what it means to them, and what they should be doing to prepare. Specifically, Buttle stressed that the tax credit can be a great incentive, despite the decrease, for small businesses.
“There are some opportunities for small-business owners to take advantage of [so] it’s important to learn exactly what the law means,” he said. “If [a business owner] is on the line of should I or should I not offer health insurance, a tax credit of 35 or even 50 percent can be the sort of thing that pushes [them] over.”
But with the tax credit being reduced, at least for small nonprofits, the incentives may be diminishing. A recent report by Human Resource Executive showed that the No. 1 concern for employers is whether to cut employee working hours to fall under the 50 FTEs to avoid the penalty.
Despite the setbacks, Buttle remains optimistic that the ACA law will have a positive effect on the economy.
“We are hearing from small-business owners that the ability for them to offer healthcare is huge and…it makes them more competitive with large businesses [and] they’re able to recruit and retain better employees.”
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