National Small Business Association (NSBA) President Todd McCracken testified on Tuesday, Nov. 15 before the House Ways and Means Subcommittee on Oversight on the small-business tax credit as passed under the Patient Protection and Affordable Care Act (PPACA). In his testimony, McCracken pointed to various problems with the tax credit, including its complexity, the fact that it is a temporary and nonrefundable credit and its exclusion of self-employed individuals.
"While the goal of this tax credit was a good one, the reality is that it provides little help to most small businesses,” stated McCracken. "At the end of the day, the number one issue for small employers is cost—something the overall bill failed to truly address.”
According to NSBA’s 2011 Mid-Year Economic Report, only 19 percent of small businesses said they have a clear understanding of how the new law will impact their business. This uncertainty of the law itself and the complexity of tax credit are likely driving the very low take-up rate of the credit thus far.
To determine eligibility, small-business owners must calculate their average annual wage, figure out the premiums they paid for eligible employees, figure out the average premium for the small group market in which they offered health insurance coverage, deal with various phase-outs and limitations that start at 10 employees or more and figure out their full-time equivalent employees. After all that, they then have to complete seven worksheets in association with claiming the credit.
"Beyond its complexity is a flaw in the credit that excluded critical groups of small businesses and their employees,” McCracken said. "Both self-employed individuals and family members who work for the small-business owner are ineligible for the credit—two huge constituencies in the small-business community.”
McCracken went on to underscore that this tax credit is neither the cure-all for small businesses’ health insurance woes nor a replacement for good policies on cost-containment that make health care more affordable in the long run, and urged lawmakers to continue seeking cost-containing measures.
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