Credits will pay bosses who pay for worker insurance

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John Crandall has provided health insurance to his five employees for years and next year, for the first time, the owner of Old Town Bike Shop will finally get some credit for it.

Not just from his employees, but from the federal government when he files his income taxes for 2010.

The new health care reform law gives some of the nation’s smallest businesses, companies like Crandall’s, a tax credit for premiums paid on employees’ behalf. Crandall pays half of the health insurance premiums for his workers and says the rate increases he has seen year after year make it difficult.

“It went up 16 percent this year,” he said. “I’m not saying we’re even close to not offering insurance, but it’s getting harder and harder.”

Thanks to the new law, 35 percent of his share of the premiums can be deducted from the store’s taxes. In Crandall’s case, that means saving $3,300 — about a third of the $9,300 he pays a year in premiums.

He plans to use the credits to reduce the costs of the premiums for his employees.

The credits are available to businesses with fewer than 25 full-time employees and which pay at least half of the insurance premiums of those employees. Workers must earn no more than an average of about $25,000 a year.

The credit increases to 50 percent in 2014, the year the law’s controversial individual mandate for insurance takes effect. After six years, the credit will have been phased out.

Larger companies will be mandated under the law to provide insurance to employees — and will face fines if they fail to provide it. But the smaller businesses like Crandall’s will see big breaks on their income taxes.

As many as 4 million small businesses in the United States are expected to qualify for tax credits under the program, according to the Treasury Department. The tax credits will save these businesses about $40 billion through 2019.

It’s all good news to Crandall, but critics of reform claim the government and advocates are exaggerating the number of businesses that will be eligible for the tax credits.

“There are so many tests, so many requirements, many businesses won’t be able to take advantage of the credits,” said Tony Gagliardi, Colorado director for the National Federation of Independent Businesses.

NFIB opposes the reform law, and is the only business group to have joined 20 state attorneys general — including Colorado’s John Suthers — in challenging the constitutionality of the law.

“According to our studies, fewer than 12 percent of businesses out there will qualify,” Gagliardi said. “That’s a far cry than the 80 percent touted by proponents. The real question is will businesses benefit from this. And the answer is no.”

Many small businesses can’t afford to pay for even half of the costs of premiums, he said. And the limit on business size will hinder job growth.

“If you’re a company with 25 full-time employees are you going to add another one, knowing that you can’t use the credit anymore?” he asked. “No, you won’t. And if you have 49 employees, you’re going to hesitate to hire the 50th because suddenly you’ll have no choice but to provide insurance coverage.”

The wage threshold is also too low, limiting the number of employers eligible for the tax credits, he said.

“Studies show that the average small-business worker makes about $27,500,” Gagliardi said. “So why drop it below that?”

The six-year limitation means that many small businesses will be faced with an uncomfortable choice after that point: to cease offering coverage because they no longer get the tax breaks, or bear the full brunt of the cost.

But employees at Old Town Bike Shop won’t have to worry. Crandall promises he’ll continue to find a way to provide insurance for his employees, even when he doesn’t get credit from the IRS for it.