FY 2013 Budget to Provide Health Insurance Tax Credits

Ernie Shannon's picture

In an effort to stem the loss of small enterprise in the United States, the Obama administration is proposing a series of health insurance tax credits in its 2013 fiscal year budget.

Health insurance costs constitute one of the biggest drains on small businesses and hampers opportunities to invest in research, development, infrastructure, and other needs. Additionally, small companies face a host of government mandates impacting operations.

According to an administration press release on Friday, the proposals will benefit an estimated 360,000 small business employers who provide health insurance to two million workers. Specifically, the tax credit changes will allow small businesses with up to 50 employees to qualify for the tax credit while doubling the maximum size for a firm to receive the maximum tax credit matching rate.

The new rules also slow the phase-out process when a firm is no longer eligible for a health insurance tax credit. Now, companies with as many as 50 workers with average salaries of $50,000 will still fall within the credit guidelines. The administration estimates that during the next ten years, the proposal would provide and another $14 billion in tax credits. For a particular business, the administrations said, “these changes could mean a tax cut of tens of thousands of dollars.”

The release also describes a simplification of the requirements for claiming the credit. For one, the FY 2013 budget eliminates the need for employers claiming the credit to contribute the same percentage of the cost of each employee’s health insurance. This makes the credit less dependent on the specific practices of the employer and easier to claim. However, employers would still be required to contribute at least 50% of the premium, “ensuring a substantial commitment to their employees’ health coverage, the administration insisted.


Secondly, the budget does away with the cap that limits eligible employer contributions to the amount an employer would have contributed if it offered the plan with an average premium in the state. This was considered a requirement that can be complicated to calculate and which is unnecessary give the other incentives to control premiums.

During the Friday news conference, the administration spokesperson included several brief tables to describe the impact of the new rules for tax credits:

Small Businesses with 30 Full-Time Employees Now Eligible:

Business Profile:
Full-time employees: 30
Wages: average $25,000 per employee
Employer premium contribution per employee: $5,000

Tax Credit in 2012:
Under current law: not eligible
Under budget proposal: $35,000

Tax Credit in 2014:
Under current law: not eligible
Under budget proposal: $50,000