Few Small Businesses Claim Health Insurance Tax Credit –Accounting Today

Far fewer small employers claimed the health insurance tax credit for small businesses in the health care reform law than were eligible, according to a new government report.  So reports Michael Cohn at Accounting Today:

The Small Employer Health Insurance Tax Credit was included in the Patient Protection and Affordable Care Act of 2010 as a way to help small businesses pay for the cost of health insurance. But the complexities of claiming the credit contributed to a relatively low popularity for the tax credit among both small businesses and their tax preparers.

 

While 170,300 small employers claimed the tax credit in tax year 2010, estimates of the eligible pool by government agencies and small business advocacy groups ranged from 1.4 million to 4 million, according to a report released Monday by the Government Accountability Office. The cost of credits claimed was $468 million. 

The base of the credit is premiums paid or the average premium for an employer’s state if premiums paid were higher. In 2010, for small businesses, the credit was 35 percent of the base unless the business had more than 10 full-time equivalent, or FTE, employees or paid average annual wages over $25,000.

Most claims were limited to partial rather than full percentage credits (35 percent for small businesses), according to the GAO, because of the average wage or FTE requirements. Only 28,100 employers claimed the full credit percentage. In addition, 30 percent of claims had the base premium limited by the state premium average.

So what went wrong?  Cohn explains: 

One factor limiting the credit’s use is that most very small employers, 83 percent by one estimate, do not offer health insurance. According to employer representatives, tax preparers and insurance brokers that GAO met with, the tax credit was not large enough to incentivize employers to begin offering insurance. Complex rules on FTEs and average wages also limited use of the tax credits.

 

In addition, tax preparer groups that GAO met with generally said the time needed to calculate the credit deterred them from claiming it. Options to address these factors, such as expanded eligibility requirements, have trade-offs, including less precise targeting of employers and higher costs to the federal government.

It gets complicated, at least to us, after that.  Read the whole article here. 

This is What Your Brain Looks Like on a Small Employer Health Insurance Tax Credit