Alabama Boosts Tax Break for Small Businesses Buying Health Insurance

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Alabama Gov. Robert Bentley has signed legislation increasing the state income tax deduction that small businesses get for supplying health insurance for their employees.

The new law applies to the current tax year. Bentley said the savings provided by the legislation should encourage small businesses to hire more workers and help lower Alabama’s 9.2 percent unemployment rate.

“If we can create jobs in Alabama, many of the problems we face will be solved,” he said.

Others who joined the governor at a bill-signing ceremony in the Capitol said the new law should also encourage more small businesses to start providing insurance.

The legislation increases the state income tax deduction for businesses employing fewer than 25 people from 150 percent of what they spend on health insurance to 200 percent. Employees of qualifying businesses who make less than $50,000 annually can also take the same deduction if they itemize their taxes. The Legislative Fiscal Office estimates the new law will reduce state income tax collections by $10 million annually.

The president of a financial advising business in Hoover, Greg Powell of fi-plan partners, said he has provided health insurance for his employees since the company started in 2005, but the new savings will help him add two employees to his 10-employee firm.

Craig Bachelor, owner of the computer consulting firm Bachelor Technologies in Montgomery, said, “Without this bill being passed I do not know if I would have been able to offer health insurance to my employees.”

The tax break was part of the Republicans’ campaign platform last year, “Handshake with Alabama.” The two freshman sponsors, Rep. April Weaver, R-Brierfield, and Sen. Greg Reed, R-Jasper, got it passed 83-12 by the House and 29-1 by the Senate.

Reed, who operates a medical equipment business with nine employees, said he spends $9,700 each month on their health insurance. “That’s a huge part of what we spend in our business,” he said.

In 2008, the Legislature increased the state income tax deduction for health insurance expenses from 100 percent to 150 percent.