Health tax credits for small businesses go unclaimed

Washington Few small businesses have taken advantage of new federal tax credits to provide health insurance coverage to employees, according to an analysis by the Government Accountability Office.

Republicans are blaming the Obama administration for pushing bad policy in the health system reform law that they say has proven to be ineffective. More than 170,000 small businesses have claimed credits to offset the costs of health coverage, but an estimated 1.4 million to 4 million employers could be eligible for the incentive.

“This GAO report confirms that many small firms haven’t claimed the tax credit because it is too complex and its temporary nature didn’t provide a significant solution to their long-term compliance problems — a regrettable but all too foreseeable conclusion,” said Sen. Olympia Snowe (R, Maine).

The GAO had reviewed tax records for 2010, the first year the credit was made available. Businesses with fewer than 25 full-time employees are eligible for the program. Employers must offer health insurance and pay at least 50% of premiums. Most small businesses did not qualify, as 83% of the employers did not offer health insurance in 2010.

“Furthermore, the small employers do not likely view the credit as a big enough incentive to begin offering health insurance and to make a credit claim,” the GAO report stated. “While some small employers could be eligible for the credit if they began to offer health insurance, small-business group representatives and discussion group participants told us that the credit may not offset costs enough to justify a new outlay for health insurance premiums.”

White House spokesman Nick Papas would not comment on the specifics of the report’s findings, but he noted the administration’s work and outreach to encourage businesses to participate. President Obama has asked federal lawmakers to reform the program so it would include larger companies. His 2013 budget proposal calls for the credit to be made available to businesses with up to 50 full-time employees.

Under current law, credits can be worth up to 35% of the employer’s share of premiums through 2013. The credit rises to 50% in 2014, and employers can receive a full subsidy if they have 10 or fewer employees.

Employers told the GAO that the process to claim the tax expenditure is burdensome, the report said. A tax form is used to calculate the amount of the deduction, which can take tax preparers up to eight hours to gather the necessary information and up to five hours to calculate. But one business owner and a nonprofit representative reported that they did not find the process overly burdensome.

“While the credit could be redesigned, such changes come with trade-offs,” the GAO said. “Changing the credit to expand eligibility or make it more generous would increase the revenue loss to the federal government.” The cost of credits claimed was $468 million in 2010.