Small businesses get tax credit for health coverage

And Loveland’s not alone: Thousands of local small businesses could benefit from a federal provision offering tax credits on a significant chunk of health-coverage costs.

For many smaller companies struggling to maintain employee benefits amid a continued economic downturn, the help couldn’t come at a better time, said Loveland, who owns Rhodes Ranch Dental in southwest Las Vegas.

“With the way things in the dental practice have been up and down, especially in the last two years, it certainly helps to have that chunk of change,” Loveland said.

Congress included the credit in 2010’s federal health insurance reform act. The law outlined the creation of state-operated insurance markets for smaller companies seeking more affordable coverage, but those exchanges aren’t set to launch before 2014. In the meantime, the law provides tax credits to help smaller businesses afford insurance beginning with the 2010 tax year. That can help boost the bottom line for small companies, whose smaller employee pools can make coverage premiums run 18 percent higher than costs for larger businesses, according to a 2009 analysis from the Obama administration’s Council of Economic Advisers.

The idea, said Lyndsay White, a tax manager and certified public accountant at the Henderson accounting firm Houldsworth, Russo & Co., is to encourage small businesses to buy health insurance for their workers.

So who qualifies for the credit?

The maximum benefit goes to businesses and nonprofits with 10 or fewer employees and average wages of less than $25,000 a year. Those operations can earn a credit worth 35 percent of what they paid to buy employees health insurance, as long as they covered at least half of the cost of coverage. Organizations with 11 to 25 workers and average wages of $25,000 to $50,000 qualify for smaller credits, again as long as they pay for half or more of their plan’s costs. Drop below that threshold, and there’s no tax credit.

The law allows owners to exclude their salaries from the calculation if it helps keep the company’s typical wage below the phase-out mark. But owners exempting their salaries can’t take credit on their share of the insurance premium, either, White said.

The law helped Loveland’s six-employee practice net a $6,000 credit, which will cover roughly 30 percent of his 2010 outlay on health insurance.

But the credit isn’t why Loveland offered health coverage; he’s long provided insurance at his seven-year-old practice.

“I feel it’s very important to invest in your staff so that the staff will invest in the practice,” Loveland said. “I made it a goal early on to invest in my employees so that we’d have a good team.”

Among small-business owners who are less committed to providing insurance benefits, the credit may not make much of a difference, White said. Even post-credit, companies will still shell out thousands for health insurance, and it’s an expense many local small companies say they can’t bear these days.

“I would love to say this will encourage every small-business owner to get health insurance for their employees,” she said. “Unfortunately, in a bad economy, a lot of small businesses are just not able to do it. They’re more in survival mode than in an extending-benefits mode. In reality, I think this credit is there for those who already offer benefits.”

Nor does it help smaller professional firms such as, well, Houldsworth Russo. Accounting companies, law firms, engineering businesses, architecture studios — as small as some of them may be, they typically have skilled staffers who earn too much to keep a company’s payroll below the $50,000 average annual salary that the credit requires.

“It is a little disappointing, because we are a small business, and my people, who have (certified public accountant) designations, have to make more money,” said Dianna Russo, Houldsworth Russo’s managing principal. “The level of credits we’re seeing are not life-changing, but I’m providing health insurance to my people, and I’m a small business with 16 employees.”

White added that a good number of the firm’s small-business clients are having trouble qualifying for the whole credit, with at least half of them “phasing out” of the credit qualifications through either employee counts or average salaries.

“I don’t think it was meant to do that. The government set it up in a way that they’re making those clients not be small businesses anymore,” White said. “It’s discouraging that more businesses don’t qualify.”

Contact reporter Jennifer Robison at jrobison
@reviewjournal.com or 702-380-4512.