It's always the same"
"What we have here is a failure to communicate"
-from the movie Cool Hand Luke
A Kentucky professional who owns his own business found that he missed getting the Health Care Tax Credit.
For the past four years!
Since the credit is worth 35 percent of what he is paying in health insurance, his business lost out on about $40,000.
It gets worse: this year he could get a 50 percent tax credit. Since his firm is paying about $50,000 in health care benefits, it would have been a savings of about $25,000.
Instead, his business will get nothing.
He purchased an Anthem Blue Cross group insurance policy from his longtime insurance agent in Kentucky and locked in for the entire year. In order to get the tax credit plan in 2014, he had to purchase the plan from a Health Care Exchange.
Kentucky's Health Care Exchange, which has won accolades as one of the best run in the United States, offers plans from Anthem Blue Cross. Almost exactly like what my friend has now.
But at half the cost.
He lost out on $40,000, although he can get some of it back if he goes through the screaming agony of filing amended tax returns for the previous years. (Apparently he can't get 2010 as it was too far in the past.) He's paying twice as much for health insurance as he should be paying and there does not seem to be an easy way for him to get out of his plan and get to the Exchange. The Health Care credit offers a provision of allowing his firm to get the money monthly so he could take that money and possibly hire another employee or improve his cash flow.
Like most small businesses (including mine), health care is the biggest budget expense behind payroll. Unlike many employers, he has paid for 100 percent of his full time employees' health care coverage and has done that for many years. With so many businesses looking for ways to dump health insurance or reduce their coverage, he ought to be rewarded.
Actually, the government did reward him, but he didn't know about it. Neither did anyone around him.
I tipped him off in a casual conversation. Up until then, he had never heard of him and no one in his circle of advisers had either. Remember the credit started in 2010. That's a long time to be missing out.
I feel bad for my friend, but also convinced that his situation is not an isolated incident.
I would bet there are thousands of small businesses that missed on the same credit that my friend missed out on. I also wonder how many small businesses went under when the money from the tax credit could have helped them stay afloat. It is possible to figure out the exact number by looking at every small business tax return and seeing if they took the credit, but the incredibly overworked Internal Revenue Service does not have the resources to do it.
Actually, if I were working at the Democratic National Committee, I would figure out a way to get the word to small business owners any way that they can. I suspect a lot of the whaling about "Obamacare" would die out quickly if all small businesses got the tax credits due to them.
$20,000 or $25,000 is a lot of money to anyone, but especially to a small business. It's tip money for Jamie Dimon and the people on Wall Street, but serious money on Main Street.
Getting the word out to every business on Main Street, and helping them figure out the formula for getting the money, might help a few Democratic Senators and Congress people keep their jobs and maybe elect a few more.
The national Chamber of Commerce spends buckets of money on advertisement bashing on candidates who support "Obamacare." If they took that same money and let people know about the tax credit for their many small business members, their true constituency would be a lot better off.
Back to my friend, who does he blame for missing out on the credit?
The first stop would be his accountant. The New York Times did a story on April 14 titled "Tax Preparers New Role: Health-Coverage Advisers" and said that many preparers like Jackson Hewitt and H&R Block have started offering a "tax and health care review" to educate people on the tax advantages and penalties associated with health care reform.
Over 140 million people file tax returns, but only half use any kind of paid tax preparers. Many, including a number of small business owners, do the returns themselves.
My friend may have been better off wandering into a storefront tax preparer. Instead, he has used the same high-powered accounting firm for over a decade.
If you are not looking for it, the small business credit is easy to miss on the IRS form 1040. Rather than having a line to itself, like the Child Tax Credit or the Residential energy credit, the Health Care Tax Credit is under a category called "total credits."
Although the Internal Revenue Service, unlike Health and Human Services, has a terrific website and several easy to understand pages about the credit, not a lot of people sit around reading the IRS web site.
They probably should, and my friend's accountant should have hit the site a lot harder, but I suspect it was one that was easy to overlook.
Next stop for my friend was his long time insurance agent, who is highly respected in the industry. The agent missed it too and then dismissed it, saying to my friend, "your payroll is too high to qualify."
Actually, it's not. In order to get the credit, one of the qualifications is that the average payroll be under $50,000 a year WITHOUT THE BUSINESS OWNER BEING INCLUDED.
This is where the insurance agent and probably the accountant missed. My friend makes well over $50,000, but his employees average under that.
If you look at a small law firm, realtor, doctor's office or any kind of professional office where there is an owner surrounded by clerical workers and support staff, I will bet you find that kind of dynamic.
It's not just a white collar dynamic. The same would hold true for plumbers, contractors, auto mechanics and other craftspeople who have helpers or support staff.
The credit is designed to encourage an owner to give health care coverage to those support people who may or may not have it before.
It's just that that small business owners need to know about it.
I would like to think that everyone will get the word by next year, but I am not sure. Since the credit has been out there since 2010 and many people missed it before now, when you did not have to buy insurance from the exchange, I suspect many more will keep missing out.
The insurance agent has an interesting dilemma. An agent is paid by commission. If he knew about the tax credit and pointed my friend to the Health Care Exchange, he just lost a client. Since health insurance agents are really getting pushed out of business by health care reform, I don't think many of them are jumping up and down to send their clients down the street.
An insurance consultant is paid a fee to advise on coverage, but there are not many of them and not many small businesses think to call them.
Disclaimer: I am a licensed life and health insurance agent and also a licensed insurance consultant in the state of Kentucky and have non-residence agent and consultant licenses in several other states.
There are a lot of people who benefit if small business owners get the word about the Tax Credit. It would obviously help the business owner and probably have the desired impact of getting employers to pay for coverage for their employees. I also think that getting the word out would be a political plus for people in Congress who voted for health care reform and also for President Obama, who's taken major hits in the polls when the health care website had so many problems.
It would be a big help to my friend. And also to his accountant and insurance agent who probably lost a longtime customer.
Health care reform has been so complex and multifaceted that there have been some communication breakdowns along the way.
This is one instance where it would be a good time to pump up the volume.
Don McNay, CLU, ChFC, MSFS, CSSC has been a licensed life and health insurance agent for over 30 years and a life and health consultant for over 20. He has written six best-selling books and spent a decade as an award-winning, syndicated financial columnist.
Internal Revenue Service sites about the Small Business Health Care Tax Credit for Small Employers:
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