A $25,000 salary is a lot cushier in rural Montana than it is in Washington, D.C. But the new small business health care tax credit, which aims to help small employers with lower wage workers provide insurance, doesn’t distinguish between places where pay is high and where it is low.
Tax credits for health coverage may not be all that helpful to small businesses in parts of the country with higher wages.
Tax credits for health coverage may not be all that helpful to small businesses in parts of the country with higher wages. iStockphoto.com
And that one-size-fits-all approach has some small business owners like Marsha Geist concerned.
To get the maximum 35 percent credit for premiums paid on their employees’ behalf, companies must pay 50 percent of the premium, have 10 or fewer employees and average annual wages of less than $25,000. Bigger businesses can qualify for a smaller credit.
Geist and her husband's landscaping business, Metropolitan Landscape Management, serves mostly high-end residential customers around Washington. The Geists pay 100 percent of the premium for the two workers on their staff of eight who take insurance, and they expect to qualify for the maximum credit.
But "that $25,000 is a low target," says Geist. It's unfair that many small businesses in pricey metro areas may not qualify for the maximum credit, she says. Average wages for service jobs in the Washington area last year were about $29,000 a year and for maintenance jobs about $46,000.
Small business owners in high-cost areas not only pay their workers more in many cases, they also pay more to insure them. The Geists' tab to cover their two employees runs about $9,300 a year. And even though they’d provide the coverage whether or not they qualified for the maximum credit, Geist worries that the low average wage limit makes the tax credit less enticing to companies that don’t currently offer insurance. "A sliding scale would have been better," she says.
As is typical of almost everything surrounding the health overhaul, there were bitter divisions among small business groups, and that gulf persists: the National Federation of Independent Business is still so opposed that it recently joined a suit challenging the law. Advocacy groups — including Main Street Alliance, which sent small business owners up to Capitol Hill to lobby last summer — are trumpeting the law. The Small Business Majority posted a calculator for owners to figure out what their credit might be.
For businesses that can’t or don’t want to take advantage of the tax credit now, supporters urge them to hold out for 2014, that’s when the credit rises to 50 percent, and small businesses will be able to buy on new health insurance “exchanges,” which are designed to increase competition and lower premiums.