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Small-business tax credit seen as boost for employee coverage


By Rebecca Vesely
Posted: September 2, 2010 - 12:01 am ET
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About 3.4 million workers are employed by roughly 1 million small businesses that are likely to take advantage of a new healthcare premium tax credit by 2013, according to a report by the Commonwealth Fund.

Overall, 16.6 million employees of small businesses are eligible for the tax credit, which is part of the health reform law, the report found.

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Starting this taxable year, small employers can get tax credits to offset the cost of up to 35% of the company's premium contribution. Eligible companies are those with fewer than 25 workers and average annual wages under $50,000, and those that pay at least 50% of their workers' premiums already. In 2014, the credit rises to up to 50% of a company's premium contribution. Tax-exempt organizations can also qualify, but at a lower rate. The tax credit sunsets after six years.

The tax credit will save these small firms more than $2,359 per worker covered by a family plan in 2014, according to the Commonwealth Fund. The Congressional Budget Office estimates the tax credits could give up to $40 billion in savings to small businesses over the next 10 years and lower annual premiums by 8% to 11% by 2016.

“It is really an economic stimulus measure that will help small businesses get through these tough economic times,” said Karen Davis, president of the Commonwealth Fund.

It's unlikely that the tax credit will spur small firms that don't already offer health coverage to do so, but it could keep small businesses from dropping coverage or cutting benefits, Davis said.

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