Prattville Area Chamber of Commerce

6/5/2008 - Small Business gets tax break on health care

Small businesses get a tax break on health care

By Cosby Woodruff

Alabama small businesses, and their employees, will be able to deduct 150 percent of the money they spend on health-care insurance premiums starting Jan. 1 under a law signed Tuesday by Gov. Bob Riley.

The tax breaks apply to businesses with 24 employees or less and only to employees making less than $50,000 annually.

Alabama business groups had called the legislation their No. 1 priority the last two years before it passed during a recent legislative special session. The groups and their members were at Tuesday's signing to praise the bill and what it will mean to their companies.

Andy Martin, who operates Square Root Interactive in Montgomery, said it was simply a bottom-line bill for his company, which employs 11 workers.

The company has long offered health insurance to its employees. For years, the company paid all the premiums, but Martin said it started passing part of that cost to its workers about two years ago.

"This will benefit not only us, but also our employees that are having to pick up their share," he said.

Previously, a company or worker could only deduct the cost of the insurance on state taxes. Now, small companies and most employees can deduct an extra 50 percent of those costs.

Billy Canary, president of the Business Council of Alabama, said the new law is only a start. His group, which lobbied for the bill for four years, sought a 200 percent deduction before negotiating to the 150 percent bill.

"On a scale of one to 10, our starting point was about an eight," he said. "We will go right back to work on it next year. This was a case of reality."

Riley compared the bill's impact to economic incentives offered to manufacturing firms such as Hyundai or Thyssen-Krupp Steel.

It will allow the small companies to increase bottom lines and payrolls.

"This is what economic development is all about," he said.

Craig Bacheler, who runs the IT firm Bacheler Technologies, said the extra help on his taxes likely will allow him to offer his workers insurance, which means he can now compete for the best workers.

"For me to compete against a larger firm, health insurance is one of the top things," he said. "This will help our decision making."

Canary said the tax break is not corporate welfare.

"We feel small businesses have earned it," he said.

Canary and other business leaders pushed the bill for years, but it never went anywhere until this year's special session. He said pressure from local business officials made the difference.

"The business community was in solidarity on this issue," he said. "We stood together on this issue."

Canary and Riley both said Alabama's chambers of commerce were the keys to building the business support for the bill.

Jeremy Arthur, executive vice president of the Prattville Area Chamber of Commerce, said it was a bill that would help the majority of his group's members.

"Most of our members are small businesses," he said. "Any time we can do something to help them afford health care, that is significant."

An Alabama business that employed 23 workers with 20 of them making less than $50,000 and that paid $500 per employee per month in health insurance costs would save about $2,880 yearly because of this bill, according to the BCA.

"This is the type of thing that becomes part of the economic stimulus," Canary said.

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