ObamaCare’s Miserly Small Business Tax Credit

Since the Administration’s earliest efforts to persuade America that ObamaCare will do more good than harm, one of the most hyped selling points has been “small business tax credits.”

In a September 2009 speech to a joint session of Congress the President promised:

For those small businesses who still cannot afford the lower-priced insurance available in the exchange, we will provide tax credits, the size of which will be based on your need.

More recently, during one of the President’s endless campaign tours, he regaled the audience with this:

Small business owners who 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!

small-business-tax-credit tableWow!  Weekly savings for the small business employer to count. Sounds exciting, huh?

But, as with all ObamaCare promises the tax credit’s implementation particulars fall far short of the hype.  It turns out that the small business tax credit is so limited and restrictive it’s worthless or nearly worthless to most small businesses.

  • The maximum tax credit of 35% applies only to business with ten or fewer employees and only if those employees are paid less than $25,000 per year, or about $12.00 per hour.
  • If the employer hires more than ten or begins to pay more than $25,000 per year the law imposes a ruthless sliding scale, slashing the value of the tax credit in response to each additional employee and dollar of increased wages

Thus, ObamaCare is a barrier, a financial disincentive facing the small business owner who might consider an investment in job creating expansion, or rewarding employees with higher wages.

It gets worse

  • If the employer provides a health plan that costs more than the government later determines is “average” in the employer’s state, the tax credit will be retroactively reduced, and the IRS will send a bill.
  • Because ObamaCare compliant health plans come with a raft of new mandates, including a package of “free” (no co-pay) benefits, they will be substantially more expensive than the health plans most small businesses have carried in the past.  Thus, for most small employers the increase cost will more than offset the tax credit.

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