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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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How will Obamas proposed Small Business Health Tax Credit

Resolved Question:

How will Obama's proposed Small Business Health Tax Credit for small businesses work?
Submitted: 8 years ago.
Category: Tax
Expert:  Ed Johnson replied 8 years ago.



A resounding YES, is my opinion. Consider the main reason.


90% of all small businesses in America have net earnings of less than 250,000 dollars. (data provided by women's venture fund, NYC).


Last night in a debate Senator Biden also echoed that figure, or one close to it. (he may have said 95%, but the two figures are within the margin of error for such data quotes).


It costs about 8 to 15 dollars per hour, and sometimes as high as 35 dollars an hour to provide full health care and retirement benefits to employees. The larger employers (the 5 to 10 percent who earn 1 million or more a year) can leverage total number of employees to reduce the health care costs. But that other 90 to 95% of small businesses really can not not afford to provide health care at the rising costs of such coverage.


This means employees have to also pay a higher percentage. In many cases, employees have to pay it all, with the only benefit is a reduced group coverage cost over individual health plan costs. (health insurance premiums can range from 250 to 850 dollars per month, cobra is around 500 to 650 per month).


By providing a tax incentive, equal to 50% of the cost of premiums, suddenly health care coverage becomes affordable as an employee benefit paid for in whole or in part by the employer.


So it will work to help provide health care coverage to employees. It will also have a secondary effect of making employee costs less expensive and a few business will be able to use the spill over savings to hire more employees and increase productivity.


YOu can read more about the final Obama Biden small business plan at:



Customer: replied 8 years ago.
I didn't ask 'if" it would work, I asked "how" it will work. I've read the campaign literature and it only says "a refundable credit of up to 50 percent on premiums paid by small businesses on behalf of their employees." For instance, is it on a sliding scale that increases as the number of employees covered increase or as the total business paid premiums increase. If I pay $80,000/year in health care premiums for my employess, can I expect to get a $40,000 tax credit under Obama's plan? Or, will it be something less than that?
Expert:  Ed Johnson replied 8 years ago.



I apologize for not clarifying my response. I understood. But NO ONE, not even Obama can tell you how that will look.


The reason is, that:


1. He is not yet president, and the final form it will take, will actually be determined by Congress. He has to present the bill to Congres, if and when he will be elected President, and then it has to be approved, and then codified by the department of treasurey, and then the IRS will produce implementing rules and regulations.


I can say, that the IRS has a tentative scenario. From my work on the tax committee (see my profile), I happen to know the IRS produces such templates so they can be ready to make changes and implement as quickly as possible. BUT, these templates and scenarios are not public knowledge, and are not even known by me or my committee.


However, obamas' plan as currently presented has no cap, and no sliding scale. it is a flat 50% tax credit based on total employee premiums paid by the employer.


So for example: if you paid 125,000 in employee premiums, you can expect a 62,500 tax credit.


The reason for such a cap would be to make sure ALL employees get health care. To cap it or require a sliding scale would eliminate some, or make it unfair to some who would pay more than others.


In your scenario, yes, you could expect a 40,000 tax credit under what is proposed right now.


But as you know this could really be something less based on your total tax bill. Not to exceed, gross or net revenues for example.


We do not know at this point, if it will even have any carryover provisions.


What is proposed now, may in fact be very different than what is passed and approved by he congress when and if he gets into office.





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