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Treasury Inspector General for Tax Administration

Press Release

November 7, 2011
TIGTA - 2011-78
Contact: Karen Kraushaar
(202) 622-6500

The Number of Claims for the Small Business Health Care Tax Credit Was Much Lower than Anticipated

WASHINGTON – The Internal Revenue Service (IRS) appropriately planned for and implemented one of the provisions of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act that affected small businesses, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

This legislation, which became effective in March 2010, contained a credit for small business employers who pay at least one-half the cost of health insurance coverage for their employees. Known as the Small Business Health Care Tax Credit (Credit), it was designed to encourage small business employers to offer health care insurance. 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 estimated the Credit would cost $37 billion over 10 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 to apply for the credit. That form, Credit for Small Employer Health Insurance Premiums (Form 8941), does not contain all of the data and calculations needed to verify each step of Credit eligibility.

“The Small Business Health Care Tax Credit is an important credit for both small business employers and their employees,” said J. Russell George, Treasury Inspector General for Tax Administration. “TIGTA’s recommendations, once adopted, should improve the IRS’s ability to verify claims for this Credit.”

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.


Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA’s internal review process to ensure that public release is in compliance with Federal confidentiality laws.

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