Last week, we discussed the federal poverty limits and how they played an important part of who may get a tax credit for purchasing health insurance through the Health Insurance Exchange that will be operated by the federal government for North Carolina starting Jan 1, 2014. Let’s take a closer look and see how high incomes and small businesses would qualify for a tax credit.
Under the guidelines of the Affordable Care Act, any individual or family that has an income between 100 percent and 400 percent of the federal poverty level would be eligible for a tax credit. For example, a family of four making about $92,000 would qualify for a tax credit. Since the actual tax tables have not been released yet, I cannot guess what the tax credit will be. However, the tax credit percentage would not be the same as a family of four only making $40,000. This example only applies if you have no health insurance in place when the new health law goes into effect. The higher amounts set by the Affordable Care Act will apply to a number of different situations which I will discuss later in this article.
The pros and the cons for small business are very complex. I won’t discuss the $251,000 taxable revenue or more for the Medicare tax increase or the 60 percent rule for paying health premiums, but I will briefly discuss the $2,000 penalty fee small employers thar employ more than 50 employees, but less than 100 will pay for each employee who is not covered by a health plan. For example, a small business that does not offer health insurance and has 75 employees would be assessed this way. The first 30 employees would not be penalized (taxed), but the remaining 45 employees would cost the business $90,000 yearly, which is 45 times the $2,000 penalty. This is called the “mandate tax.” Contact your accountant to get a more comprehensive explanation.
Small businesses with one to 10 employees and 11 to 25 employees do not have to provide health insurance, but if they do elect to provide coverage, small business owners will see a different set of rules. First, a company must meet average wage requirements, $20,000 for 10 full-time employees and less and $50,000 for a small business with 11 full-time employees to 25. Next, a small business must pay at least 50 percent of the employee’s health premiums. If a small business meets those two requirements and it purchases health insurance from the Small Business Health Option Program for two years, the business will get a 50 percent tax credit — 35 percent for non-profits — on total employee premiums paid. Small business under 25 employees will not have to pay the “mandate tax” like larger companies. Also, a contractor paying himself $50,000 a year would not qualify for the small business tax credit, but may qualify for a tax credit through the individual Health Insurance Exchange.
Under the Affordable Care Act law going into effect Jan 1, 2014, a number of different situations may occur and you and your family could get a tax credit even though you make a high income. Example 1: You and spouse both work part-time, but make more than federal poverty minimums. Example 2: One is unemployed and other is employed full-time with no health benefits. Example 3: Both are unemployed, but make greater than federal poverty minimums. Example 4: A couple with a family, owns a small business with no insurance and makes $80,000. Example 5: Both work full-time with no health benefits.
Next week: We will look at the 10 Essential Health Benefits provided by the Affordable Care Act program and discuss whether your prescriptions will be covered under Obama Care.
To see the full Federal Poverty Level chart, visit www.familiesusa.org/resources/tools-for-advocates/guides/federal-poverty-guidelines.html.
Darek Hunt, a Lumberton resident, has his master’s degree in Public Policy and Administration and is a doctoral student in Health Sciences. He specializes in health care administration and health policy.