Small business shuns health care tax credit

@CNNMoney May 23, 2012: 5:56 AM ET
A health care tax credit meant to help small businesses has been called too weak and confusing. A recent report by the Government Accountability Office concurs.

A health care tax credit meant to help small businesses has been called too weak and confusing. A recent report by the Government Accountability Office concurs.

NEW YORK (CNNMoney) -- A tax credit meant to help millions of small businesses afford health coverage for their employees was claimed by only 170,300 last year, a government watchdog has found.

The Government Accountability Office report, made public this week, is the latest to highlight the shortcomings of the tax credit, which has been criticized for being too weak and complex.

The report noted that only a fraction of those eligible have used the assistance. Between 1.4 million and 4 million small businesses were eligible for the tax credit, according to GAO.

The tax credit, enacted as part of the 2010 Affordable Care Act, is aimed at defraying the high cost of health coverage. It is available to companies that have 25 or fewer workers, pay average salaries of $50,000 or less and cover at least half of employee health insurance premiums.

Many small employers have told CNNMoney that they found the tax credit program to be too confusing -- and often too costly -- to be worth the accounting endeavor.

So many small firms are forgoing the extra cash that $20 billion dollars meant to go to small businesses over the next decade won't be distributed, according to the Congressional Budget Office.

The GAO report noted the credit "was not large enough to incentivize employers to begin offering insurance." According to the report, the average credit was $2,700.

Worse still, company owners were deterred from making claims because of the confusing way the credit is calculated. The formula includes odd features, such as counting some workers as 1/15th of an employee and reducing federal help if a firm insures more workers.

The GAO suggested that the Internal Revenue Service revise its procedures and take a softer approach with companies that make mistakes on credit applications.

Included in the report was a response from IRS Deputy Commissioner Steven Miller, who agreed with some suggestions but said his agency had conducted "significant outreach" to small businesses.

President Obama has also suggested changes that would simplify and expand the tax credit for businesses this year.

A Treasury Department spokesperson on Tuesday noted that new tax credits take some time to gain popularity and that the IRS plans to ramp up outreach.

Treasury had previously told CNNMoney that nearly 309,000 small businesses received the credit for 2010 as of late last year. That number counted individual partners at firms, not actual employers.

It is possible the entire tax credit program could be scrapped depending on how the U.S. Supreme Court rules in the case challenging the 2010 law's constitutionality. A ruling is expected next month. To top of page

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