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A Helping Hand for Small Businesses: Health Insurance Tax Credits

Publisher: 
Small Business Majority
Date: 
Thursday, 1 July, 2010

Small businesses are the backbone of America’s economy. Across the country, there are nearly 4.8 million businesses that employ 25 or fewer workers. They’re your local diner, the hardware store down the street, and the mechanic in your neighborhood. 

While small businesses have been serving us, however, our healthcare system has been failing them, making it difficult—if not impossible—to provide their workers with quality, affordable health coverage. Particularly for the smallest businesses, the cost of providing health insurance can be prohibitively expensive, especially in these tough economic times. 

In the Patient Protection and Affordable Care Act, Congress and the President recognized that small businesses, particularly those with 10 or fewer workers, struggle to provide health insurance for their workers, and that some cannot afford to provide it at all. Legislators therefore included many provisions in the law to help small employers and their workers obtain high-quality, affordable coverage. One of these important provisions is a program to provide tax credits that small employers can use toward the purchase of health insurance for their workers. Starting this year, businesses with fewer than 25 workers and average wages of less than $50,000 will be eligible to receive a tax credit for the health insurance that they provide for their employees. 

For this study, Families USA and Small Business Majority commissioned The Lewin Group to analyze data on business sizes and wages from the U.S. Agency for Health Care Research and Quality and the U.S. Census Bureau in order to quantify the number of employers who will be eligible to receive help from this provision. Lewin was then asked to use its Health Benefits Simulation Model to quantify the number of employers who will be eligible for the maximum tax credit.

Key Findings

More than 4 million (4,015,300) small businesses will be eligible to receive a tax credit for the purchase of employee health insurance in 2010. That’s 83.7 percent of all small businesses in the country.

In 11 states, more than 90 percent of small businesses will be eligible to receive a tax credit in 2010. These states are Arkansas (94.2 percent), Montana (94.0 percent), Nebraska (93.8 percent), South Dakota (93.6 percent), Mississippi (93.2 percent), Indiana (92.9 percent), North Dakota (91.9 percent), Missouri (91.8 percent), Iowa (90.8 percent), West Virginia (90.3 percent), and Maine (90.1 percent).

Approximately 1,198,700 American small businesses will be eligible to receive the maximum tax credit in 2010.

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