Proposed Income Tax Credit Helps Start-Ups

March 9, 2008
| By Pete Daly |
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LANSING — A proposed change in the Michigan income tax law would offer a health insurance tax credit that might help encourage more people to leave a job with good insurance benefits and start their own small business.

House Bill 4619, sponsored by Oakland County Democrat Rep. Andy Meisner, was approved by the House in February. It would provide a state income tax credit of up to $1,000 to an individual who must pay for his or her own individual or family health insurance coverage while starting a small business.

The individual state income tax credit could only be claimed for the first two years of existence of the new business. It would not be refundable and could not be more than the taxpayer’s liability.

To qualify, the business started by that individual must have fewer than 25 employees, with sales totaling less than $1 million annually, and may not be a publicly traded company. The qualifying start-up company must be certified by the Michigan Economic Development Corp. before the credit can be claimed.

Todd Anderson, vice president of government relations at the Small Business Association of Michigan, said the proposed tax credit is seen as a possible way to counter the "job-lock" that stymies some people from going into business.

People with jobs that provide good health insurance coverage tend to resist leaving that job because the cost of health insurance is so high, said Anderson, adding that the cost may amount to $10,000 to $15,000 right off the bat in the first year of starting a new business.

He used a fictional example of "John Smith" who is employed at General Motors and wants to leave to start his own small company — but won't, because of the "major impediment" of paying for health insurance along with all the other costs of starting a business.

"The sentiment is, if you are willing to take that risk — trying to start a business — the state is going to jump in with you and help you out with your taxes a little bit that first year," said Anderson.

"Michigan clearly needs … many new businesses to provide new jobs," added Anderson. He sees the proposed tax credit as "one small step of many that needs to be taken to improve our economy."

Meisner first introduced House Bill 4619 a year ago, but it was put on the back burner while the Legislature focused on replacing the state business tax structure, according to Anderson.

According to statistics gathered by the U.S. Small Business Administration, 20,758 businesses were established in Michigan during 2003 and 2004. Of those, 16,489 employed fewer than 20 people.

The Business Journal was unable to reach Meisner for comment on his legislation. 

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