EcommerceBytes-Update, Number 260 - April 04, 2010 - ISSN 1528-6703     2 of 6

Will New Health Insurance Tax Credit for Small Employers Help Online Sellers?

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Have you been wondering if the healthcare tax breaks promised to small businesses will help you? Most small online sellers will be sorely disappointed by information provided by the Internal Revenue Service.

Health coverage legislation enacted in the U.S. this year includes a Small Business Health Care Tax Credit to help small businesses and small tax-exempt organizations afford the cost of covering their workers.

The IRS said small businesses and tax-exempt organizations that provide health insurance coverage to their employees may qualify for a special tax credit. However, sole proprietors are left out of the equation, as are mom-and-pops, unless they have non-family employees. The credit is specifically targeted to help small businesses that primarily employ low- and moderate-income workers.

The tax credit included as part of the Patient Protection and Affordable Care Act, approved by Congress and signed by President Obama on March 23, is available to small employers that pay at least half the cost of single coverage for their employees.

It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. The maximum credit goes to smaller employers - those with 10 or fewer full-time equivalent - paying annual average wages of $25,000 or less.

The maximum credit is 35 percent of premiums paid in 2010 by eligible small-business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, the maximum credit increases to 50 percent of premiums paid by eligible small-business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit.

What about Sole Proprietors and Partnerships?
"A sole proprietor, a partner in a partnership, a shareholder owning more than two percent of an S corporation, and any owner of more than five percent of other businesses are not considered employees for purposes of the credit."

How about a Family-Run Businesses?
"A family member of any of the business owners or partners listed in Q/A-13, or a member of such a business owner's or partner's household, is not considered an employee for purposes of the credit."

Yes, even the in-laws are banned: "For this purpose, a family member is defined as a child (or descendant of a child); a sibling or step-sibling; a parent (or ancestor of a parent); a step-parent; a niece or nephew; an aunt or uncle; or a son-in-law, daughter- in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law."

So for online sellers who have moved out of the garage and into the warehouse, it may help. But for the entrepreneur working on his or her own, it appears you're out of luck in getting a tax break for your own health insurance. (Naturally you should check with your accountant.)

Possible Good News Ahead?
While the tax-break provision in the Patient Protection and Affordable Care Act may not help you, the bill itself set out to help make health insurance affordable. The Senate Democratic Policy Committee has a PDF file called "Making Coverage Affordable" that explains some of these provisions.

However, even the experts will tell you that the bill is so complex that it isn't easy to break it all down. Putting the politics of the legislation aside, it behooves us to understand how the new law affects us as business people. Here are some links to more information, and a link to the AuctionBytes Blog for discussion.

For More Information

IRS Page on Small Business Health Care Tax Credit - Link to page

IRS FAQs - Link to FAQs

"What health care reform means for your business," CNNMoney (3/22/10) - Link to article

"Cadillac" Insurance Plans Explained (Kaiser Health News) - Link to page

Do you have tips you can share with colleagues on how to get low-cost health insurance or resources to more information? Leave a comment on the AuctionBytes Blog

About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to

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