Stimulus Package Could Bite Small Business Owners

With the credit crunch, high unemployment and low consumer spending, there doesn’t seem to be a lot of good news on the docket for small business owners. But the recently enacted American Recovery and Reinvestment Act of 2009 — better known as the Stimulus Bill — does provide some relief for entrepreneurs, according to small business experts.

Alas, the government giveth, and the government taketh away: In subsidizing the health insurance coverage for recently laid-off workers under the COBRA program, the law may cause a cash-flow crunch for businesses charged with fronting those premiums.

Appreciation for Depreciation

First, the good news. The Stimulus Bill gives you the ability to accelerate the depreciation of certain capital expenditures, such as computer equipment. That could lower your tax burden in the near-term, according to Court Cunningham, CEO of Yodle, a local online advertising firm specializing in helping small businesses get found by local customers. In addition, you can use current business losses to offset profits made in the previous five years instead of the normal two years, which should make some struggling businesses eligible for a tax refund.

Cunningham also noted that the Treasury Department has $250 million at its disposal to help small business owners lower the interest rates on business loans, thereby lowering their payments. “It’s similar to the housing bailout,” he said. “These new loan facilities are critical for small business owners. Working capital is their lifeline.”

COBRA Could Strike Small Businesses Hard

Unfortunately, the Stimulus Bill cuts both ways. While the $24.7 billion set aside to provide a 65-percent subsidy of health care insurance premiums for the unemployed under the COBRA program is certainly a worthy endeavor, it could leave business owners in a cash squeeze warns Steve Sahlein, co-president of the American Institute of Professional Bookkeepers. The reason: Employers are on the hook for the 65 percent subsidy promised by the government and must pay it monthly. But they’ll only recoup that outlay by deducting the accrued amount from their federal employment tax deposit, which many employers file quarterly. So, in effect, you’ll be advancing the government the 65 percent of the COBRA premiums Congress so generously promised.

There’s another potential problem. “When the subsidies add up to more than your company’s tax deposit, your company must request reimbursement from the U.S. Treasury,” noted Sahlein. “At this point, there is no way to know how long you will have to wait for reimbursement.”

Add to this the administrative burdens of notifying former employees (those terminated as far back as September 1, 2008) about the new COBRA payment and calculating the subsidized health insurance premiums, and the COBRA Subsidy provision of the stimulus package may prove a dark cloud obscuring the Stimulus Bill’s silver lining.