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Millions of small businesses could be eligible for health care tax credits

By Lori Montgomery
The Washington Post
Monday, May 17, 2010; 12:12 PM

As many as 4 million small businesses might be eligible for federal tax credits to help cover the cost of health insurance for their workers, administration officials said Monday, one of the first benefits to flow from the recently enacted health-care overhaul.

Not all of the firms will be eligible for the credits immediately, because not all of them currently offer insurance, Assistant Treasury Secretary Michael Mundaca said on a conference call with reporters. But all were sent government postcards alerting them to the availability of the credit -- which covers up to 35 percent of their health-care costs -- in hopes of spurring more to offer coverage, Mundaca said.

On Monday, the Internal Revenue Service also issued a series of rules clarifying eligibility for the credit, which is available to businesses with fewer than 25 employees and paying an average salary of less than $50,000 a year. The value of the credit phases out as the number of workers and their salaries rise, with the full 35 percent credit available only to businesses with fewer than 10 full-time workers paying an average salary of less than $25,000.

The IRS said the value of the credit would not be reduced by state health-care tax credits, which exist in as many as 20 states, according to a list compiled by the National Conference of State Legislatures. Businesses will also be permitted to apply the credit to vision, dental and other such coverage, so long as they pay at least 50 percent of their workers' premiums.

The new rules also allow businesses to use one of three methods to determine number of full-time workers, counting bodies, weeks worked, or hours worked, whichever is easier and more beneficial. And the IRS said it would permit businesses to claim the credit this year even if they do not currently meet a requirement under the law to provide the same level of coverage to every worker. Mundaca said tax officials were still trying to determine when businesses would have to meet that standard.

Although Mundaca and other administration officials touted the benefits of the new law, it has hardly been an unqualified hit in the small business community. One of the largest organizations of small employers, the National Federation of Independent Business, last week joined 20 states in suing to have the health-care law overturned. The NFIB said it was particularly concerned about the impact of new fines on firms that fail to provide their workers coverage, which are scheduled to take effect after 2014. The suit, however, takes aim primarily at the constitutionality of the law's requirement that individuals obtain coverage.

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