Health Care Tax Credit Falls Short

By KBJR News 1

September 21, 2012 Updated Sep 21, 2012 at 11:06 AM CDT

For those who filed for an extension on their tax return, the deadline is approaching. During this final push to get everything organized, the I-R-S is reminding small business owners of a tax credit that hasn't had a good response. It's a credit that many employers aren't finding worth their time.

Sarah Evans is proud to say that she offers health care to some of her employees.

But with a hefty price tag on premiums, she is unable to offer it to everyone.

"I think everyone wants to stay healthy, and healthcare costs are so expensive it's hard to do that independently."

So she was hopeful to hear about the Small business health care tax credit, enacted last year as part of the Affordable Care Act.

"It should be a real windfall for employers who provide health insurance for employees but there is a couple of fairly extensive limiting phase outs," says Jeffrey Schaefer, a CPA and tax manager at Eikill and Schilling in Cloquet.

Schaefer says once you take a look at the complicated calculation and look at the daunting paper work, many people don't find the tax credit beneficial enough to cash in.

"It seemed like it was going to be this big 'oh yeah get lots of money back because you put in plenty of money', but it really, it wasn't lots of money," says Sarah.

"A lot of times, businesses won't qualify for it at all. Many other times, the limiting provisions of this credit make it really hard for businesses to get a lot out of it," says Schaefer.

In fact, the Government Accountability office found that only about 170,000 businesses out of an eligible 1.4 to 4 million cashed in on the credit last year.

They say that the credit is not large enough to give incentive to employers to provide health care and they have advised the IRS to revise its procedures.

Although she wasn't able to get the full return, Sarah says it's better than nothing.

"Some money is better than no money."

Republican lawmakers are using this report from the Government Accountability Board to prove that the tax credit should be allowed to expire.

President Obama wants to extend the credit, with changes that would simplify and expand it.

The credit is set to expire in 2016.