Small Business Health Care Credit Claims Lower Than Expected

Claims for the Small Business Health Care Tax Credit provided by the Patient Protection and Affordable Care Act (ACA) have been lower than anticipated despite extensive IRS outreach, an audit by the Treasury Inspector General for Tax Administration (TIGTA) has found.



The ACA provides a tax credit for small business employers who pay at least one-half the cost of health insurance coverage for their employees. The credit was designed to encourage small business employers to offer health insurance benefits. TIGTA reviewed whether the IRS adequately implemented and accurately processed the credit.

The volume of claims for the credit has been low despite IRS efforts to inform 4.4 million taxpayers who could potentially qualify for it. According to the IRS, as of mid-May 2011, just more than 228,000 taxpayers had claimed the credit for a total amount of more than $278 million. The IRS plans to conduct focus groups to determine why the claim rate was so low. The Congressional Budget Office had estimated the credit would cost $37 billion over ten years and that taxpayers would claim up to $2 billion of credit for tax year 2010.

TIGTA found that some taxpayers and tax practitioners made mistakes when completing Form 8941, Credit for Small Employer Health Insurance Premiums, to apply for the credit. That form does not contain all of the data and calculations needed to verify each step of credit eligibility.

TIGTA made several recommendations to make it easier for the IRS to verify eligibility and to correctly process claims for the credit. IRS officials agreed with the recommendations and stated that they plan to take appropriate corrective actions.

For more information, visit http://www.treasury.gov/tigta/auditreports/2011reports/201140103fr.html.