The Tax Advantages of the Affordable Healthcare Act for Small Businesses

By Daniel Halimi – Delt Law Clerk – Cal Western Class of 2014

Small business owners have received the Affordable Care Act– AKA “Obamacare” with great confusion and reluctance.[1]These fears, however, are often misplaced. With careful consideration, small business owners may realize win-win benefitsby taking advantage of the ACA.

The ACA’s purpose is to encourage small business owners to offer health insurance coverage to their employees.[2]Although an estimated 4 million business are eligible under the ACA, only half of all businesses with three to nine workers offered employees insurance in 2012.[3]

To be eligible under the ACA, the small business must employ fewer than 25 full-time employees and pay at least half their employees’ insurance premiums.[4] Eligible employers receive a 35 percent tax credit for the 2010-2013 tax years.[5] Beginning in 2014, the tax credit increases to 50 percent for two consecutive tax years.[6]The full 50 percent tax credit is available to employers who employ no more than ten full-time employees with an average salary of $25,000.[7]The tax credit is reduced as the number of full-time employees and the average annual salary increase.[8]

Tax credits provide a great benefit to business owners. Unlike a tax deduction, which only reduces taxable income, tax credits reduce the amount of taxes owed, dollar for dollar.[9]Moreover, the tax credit may be credited to past or future tax years.[10]

For example, a businesspaying $50,000 in health care premiums for 10 employees, who earn an average annual wage of $25,000, would receive a tax credit of $25,000 in 2014. A tax deduction, however, would save $17,000 in taxable income (assuming the employer is in the $335,000 to $10M tax bracket, or 34% tax rate).[11]

Further, the difference between the health care premiums and the tax credit may also be claimed as a tax deduction.[12] Using the example above, the unaccredited $25,000 in excess of the tax credit may be claimed as a tax deduction, further benefiting the small business. As a result, the small business would receive a $25,000 tax credit and may reduce taxable income by $8,500.

Health insurance is one of the most valuable benefits an employer can offer to help attract and retain good employees.[13] The ACA allows small businesses to provide an essential benefit at a low net cost. Rather than increasing an employee’s salary, a small business may offer health insurance benefits at a lower cost to attract and retain valuable employees.


[1] Karen E. Klein, Determine Eligibility for the Health-Care Tax Credit, Bloomberg Business Week (Sept. 13, 2011),

[2]Key Provisions Under the Affordable Care Act for Employers with Fewer Than 25 Employees, U.S. Small Business Administration,

[3]Klein Supra, note 1; See also Karen E. Klein, Explaining Obamacare’s Baffling Tax Breaks for Small Business (March 22, 2013),

[4]Small Business Health Care Tax Credit for Small Employers (Aug. 23, 2013), Internal Revenue Service,





[9]Robert Franco, Affordable Care Act (“Obamacare”) Allows Tax Credits to Eligible Small Employers (Aug. 16, 2013), Source of Title,

[10]Internal Revenue Service Supra, note 4.

[11]Small Business Health Care Tax Credit | Frequently Asked Questions (Sept. 2013), United Health Care,

[12]Internal Revenue Service Supra, note 4.

[13]Franco, Supra, note 9.

Author Bio

Arthur Paul D’Egidio is the Managing Partner of DP Injury Attorneys, a San Diego personal injury law firm. With more than 12 years of experience in California injury law, he has dedicated his practice to representing clients in a wide range of personal injury matters, including car accidents, workers’ compensation, slip and falls, catastrophic injury, and wrongful death cases.

Arthur received his Juris Doctor from the Thomas Jefferson School of Law and is a member of the State Bar of California as well as the San Diego County Bar Association. He has received numerous accolades for his work, including being named a Super Lawyer for seven straight years by Thomson Reuters and a “Top 40 Under 40” by the National Trial Lawyers.

LinkedIn | State Bar Association | Avvo | Google