Three Ways Obamacare Will Affect Small Business Taxes

Matt Shelly
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As a business owner, you need to know how the Affordable Care Act affects you in terms of small business taxes. In many cases, Obamacare actually provides tax credits for small business owners as an incentive for them to provide their employees with health insurance coverage. How the Affordable Care Act affects you depends on the size of your business.

Tax Credits

If your business employs 25 or fewer people with wages averaging less than $50,000 per year, you fall under the Affordable Care Act's eligibility requirement to receive a tax credit for providing your employees with health insurance. Furthermore, the credit increases in the year 2014, rising from 35 percent to 50 percent as the maximum credit small business owners may claim. If you do not owe taxes during the credit year, you may move this credit backward to pay back taxes or forward to pay future ones. However, only full-time employees count toward future tax payments.

Tax Penalties

While the Affordable Care Act eases small business taxes for companies with 25 or fewer employees, as a small business owner, you must consider the possibility of penalties if your company has 50 or more full-time employees. If you have at least 50 employees, the Affordable Care Act requires you to provide them with health insurance or pay penalties. The penalties may be as much as $2,000 per full-time employee with a 30-employee deduction. You may face up to a $3,000 penalty per employee if the employees find coverage so high that they must seek government subsidies in order to afford insurance. However, more than 95 percent of small businesses have fewer than 50 employees, so most do not have to worry about these penalties.

Overall Taxes

There is no evidence that the Affordable Care Act raises taxes in any other way besides the penalties for businesses with 50 or more employees that fail to provide coverage for their full-time workers. In fact, Obamacare offers many of these incentives with tax breaks in order to encourage more small business owners to provide their employees with coverage. If you do not know whether or not your business qualifies for a tax credit, you may apply with no risk of a penalty if you do not qualify.

The size of your company matters when determining whether the act allows your business a tax credit for providing your employees with health insurance or penalizes it for failing to provide them with coverage. However, the Affordable Care Act does not include any other changes in the tax code for small businesses. Overall, as a business owner with 25 or fewer employees, you now have more incentive to provide health insurance coverage for your employees.


(Photo courtesy of Danilo Rizzuti /


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