Congress created the tax credit in 2010 as part of the overhaul of the health-care system. It was intended to be an incentive for small businesses to offer health insurance, but many companies have found they don't qualify. The cumbersome process for filing a claim to get a credit has discouraged others from even trying.
"In some cases, it's more hassle than it's worth," said Teri Gutierrez, regional sales manager for JBA Inc., an insurance broker in Raleigh, N.C. Most of her small-business clients aren't trying to get the credit.
King's hopes were dashed by the rule that disqualifies a company if its employees earn an average of $50,000 or more a year. That's a low wage for people in the high-tech industry, he said.
Among the criteria that must be met to qualify:
• A business must have fewer than 25 full-time employees or the equivalent of 25 full-time employees.
• Employees cannot be owners, such as sole proprietors or partners. Certain shareholders are excluded, depending on the corporate structure and how much stock they own. Nor can employees be members of an owner's extended family. There is no tax break for premiums paid on relatives' insurance — and very small businesses tend to have family members on their payrolls.
• The business must pay at least half the insurance premiums for its employees.
And that's just the start. The Internal Revenue Service form needed to claim the credit, Form 8941, requires a complex series of calculations. The credit, which is a maximum of 35 percent of a company's premiums, can be reduced by a number of factors including any state subsidies a company gets for its premiums or if premiums are higher than the state average for small-business coverage.
"The calculations are mind-numbing," said Jeffrey Berdahl, of RLB Accountants in Allentown. His firm, whose partners collectively have decades of experience as CPAs, had to create a spreadsheet to help determine whether clients would be able to get the credit. But he said only a handful did, and they received "a nominal amount" of money back. For many, the credit was offset by the fees they paid their accountants.
Insurance is a significant expense, and more so for small businesses, simply because it costs more per employee when a company has fewer people to cover. According to a Department of Health and Human Services study in 2009, the average annual premium for a worker in a company with fewer than 10 employees was $4,982. That's a lot of money to small companies, 83 percent of which don't offer health insurance, according to the Government Accountability Office, the investigative arm of Congress. (The average premium for companies of all sizes was $4,669.)
Neil Crosby, a health-insurance broker with Warner Pacific Insurance Services in San Diego, said many small businesses he deals with aren't aware of the credit, and those who try for it often find they don't qualify.
