Grim Reality of the ObamaCare Tax Credit

Newly released IRS Regulations show the actual value of the ObamaCare Small Business Tax Credit does not measure up to the hype.

Throughout the run-up to passage of ObamaCare in Congress, and in the re-selling campaign since passage, the President has continuously touted its “small business tax credit.”  Here’s a typical Obama quote from a re-selling pep rally in April:

Starting now, small business owners that provide health care to their workers can sit down at the end of the week, look at their expenses, and begin calculating how much money they’re going to save!

For small business owners who don’t currently provide health insurance, they’ll be able to factor in this new benefit in deciding whether to do so. And with that savings, employers may be able to cover an additional worker or hire that extra employee they’ve needed.

Even the IRS was used to help promote ObamaCare, sending post cards out to millions of small businesses to tell them they may be eligible for a tax credit equal to 35% of their health insurance costs.

The sales presentation makes it looks quite generous to employers.  But, as with all the promises of ObamaCare, the written details contradict the marketing.  It turns out that the small business tax credit is so limited, so restricted it’s worthless or nearly worthless to most small businesses.

  • The tax credit does not apply to the cost of health insurance for Business owners or partners.  It doesn’t apply to relatives of owners or partners who are employees in the business.
  • Businesses with 25 or more full time employees are ineligible for the tax credit.
  • Businesses whose employees are paid, on average, more than $50,000 per year are ineligible.
  • If the employer provides a plan that costs more than the government says is the “average” cost of health insurance in the employer’s state, the tax credit is reduced.

But even these stern rules make the tax credit appear to be more generous than it is.

It turns out  that the  maximum credit, 35% of the employer’s health care cost, applies only to businesses with fewer than eleven employees who pay average wages under $25,000 per year for full time employees.

For employers who pay more, or hire more the law imposes a ruthless sliding scale, slashing the value of the tax credit.

This table shows the value of the tax credit in a few real world situations. 

1 Comment so far

  1. Drew on June 15th, 2010

    Now hold on just a second. You mean to tell me someone making less than $250K a year just had their taxes raised? That can’t be!!

    Oh, wait, I see. They actually had their taxes lowered! Even though their “costs,” not labeled taxes, went up. Lokks like a good old Chicago thug bair and switch.

    Like the old Monty Pythin skit…move along, nothing to see here.

    Change you can believe in.