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Millions of Small Businesses Qualify for Premium Tax Credit, According to Families USA

By Nellie Bristol, CQ HealthBeat Associate Editor

May 9, 2012 -- Seventy percent of small businesses with fewer than 25 employees are eligible for tax credits to help them provide insurance for their workers, according to a study released last week by Families USA and the Small Business Majority.

In total, more than 3.2 million small businesses would qualify in tax year 2011, the report says. More than 1.3 million businesses are eligible for the maximum credit of 35 percent of premium costs, it adds. The report estimates that the credit would affect 19.3 million Americans employed by small companies and that the total value of the tax credits in 2011 is more than $15.4 billion.

The report, conducted by the Lewin Group, breaks down eligibility by state. The groups released it in an effort to promote the benefit. Established as part of the health care overhaul (PL 111-148, PL 111-152), the credit was expected to help 360,000 of the estimated 6 million small-business employers in 2011.

Critics of the program argue that its rules are too cumbersome and restrictive. In response, President Obama's fiscal year 2013 budget proposal would reduce the requirements to qualify for the credit and would expand the program. Businesses with up to 20 workers would be eligible for a full tax credit instead of just those with up to 10 workers under current law. Also, employers with up to 50 workers would be eligible for partial credit, instead of the 25 workers required by current rules.

In a recent press call, John Arensmeyer, Founder and CEO of Small Business Majority, an advocacy group, said 57 percent of businesses in a recent survey did not know about the program. Families USA Executive Director Ron Pollack said he expects participation to increase as more employers become aware of the benefit.

Two small-business owners participated on the call: Ron Nelsen of Las Vegas and ReShonda Young of Waterloo, Iowa. Nelson said he has offered insurance to his employees for years but rising premium costs forced him to cut back on his contribution. He filed for the small-business tax credit and claimed $2,235 in 2010 and $2,722 in 2011.

"This is the first good news surrounding health insurance coverage that I've had in a long, long time," he said. "With this tax credit, I'm not even thinking about having to tell my guys they're on their own when it comes to health insurance, and that's huge."

Young said her business qualified to receive 10 percent of its insurance costs through the credit, which allows her to attract and retain employees.

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