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Health care law’s effects detailed

Posted: July 24, 2012 6:35 p.m.
Updated: July 24, 2012 6:35 p.m.

One of our goals at the Small Business Development Center at College of the Canyons is to provide the small business community with actionable information on economic opportunities that can affect their business.

We work with a variety of non-partisan small business advocacy groups like Small Business Majority and Small Business California to gain insight into the needs and concerns of small business. Small Business California conducts an annual survey of small businesses and consistently finds that access to effective, affordable health insurance remains a key concern.

Recently Santa Clarita businesses had the opportunity to participate in the statewide listening tour conducted by Small Business Majority to gain insights and provide information with respect to health insurance.

As the Supreme Court has found the portions of the Patient Protection and Affordable Care Act that address private health insurance constitutional, now is a good time to provide an update on where we stand with respect to three key aspects of this new law that will affect small business, based on information from the Small Business California and through local businesses’ participation in the Small Business Majority’s Listening Tour.

Who’s affected?
If your business has fewer than 50 full-time equivalent employees, the upcoming requirement that you either provide health insurance or pay a fee does not apply to you.

There are enticements and subsidies in the law to encourage these particular businesses to provide health insurance, but there is no requirement that they do so or penalty/tax imposed if they choose not to.

Tax credits available
The PPACA provides a tax credit of up to 35 percent for businesses with up to 25 full-time employees who pay at least half of the cost of health care coverage for their employees.

To receive the credit the average annual wage paid to the employees must be less than $50,000. The credit is calculated on a sliding scale and is effective for the 2012 and 2013 tax years. Starting in 2014, the credit increases to 50 percent for two years and can be carried forward for up to 20 years.

This tax credit is available now to qualified small businesses. The Internal Revenue Service has more information about this tax credit and a link to the IRS article can be found at  

If a business issues more than 250 W-2s a year, it will have to report the cost of health insurance benefits starting with the 2012 tax year.

Businesses issuing fewer than 250 W-2s are currently exempted from this requirement pending additional guidelines from the IRS. The amounts spent for employee health benefits by an employer are not taxable income to an employee.

If businesses with fewer than 50 full-time-equivalent employees choose to offer health insurance, they will be able to purchase health insurance through the new Small Business Health Options Program exchange scheduled to come online in 2014.

However, a small business can continue to use a broker to find health insurance. The SHOP exchange will be empowered to negotiate rates with insurance companies.

Mandates and penalties
Beginning in 2014, an individual will be required to purchase or enroll in health insurance coverage or pay a penalty of $95  or 1 percent of taxable income, whichever is higher. This penalty will increase on a phased-in basis to $695 or 2.5 percent of taxable income in 2016.

Beginning in 2014, companies with 50 or more employees will be required to either provide health insurance or pay a tax penalty of $2,000 per full-time employee.

In calculating this penalty, a business would first count its total full-time-equivalent employees, and then deduct 30 employees.

For example a company with 80 full-time-equivalent employees who opted to pay the tax penalty instead of purchasing health insurance for its employees would pay a penalty of $100,000.

hese are some of the major changes that currently or shortly will be affecting small business as a result of the PPACA.

The SBDC at College of the Canyons will continue to provide information and resources to the local small business community as the law evolves and additional implementation elements become settled.

Steven Tannehill is the executive director of the Small Business Development Center hosted by College of the Canyons. His column reflects his own views and not necessarily those of The Signal. For more information about the SBDC, please visit or call 661-362-5900. To make an appointment with an SBDC business advisor please email


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