- IRC Section 45R
- IRS website on the credit
- IRS 1-page fact sheet showing 3 simple steps (note the number of terms you need to know and the data you need to gather, such as the average employee wage)
- 36 FAQs from IRS
- Notice 2010-44 (20 pages) explaining how it works
- Notice 2010-82 (19 pages) expanding on Notice 2010-44
The target audience for the credit - small employers, measured by number of employees and their average full-time equivalent wage. They will face an added expense of either having an employee figure out the credit, which also involves getting information from the insurance company, and/or paying a tax adviser to compute it.
A TIGTA report Affordable Care Act: Efforts to Implement the Small Business Health Care Tax Credit Were Mostly Successful, but Some Improvements Are Needed (11/7/11), noted:
“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.”
On November 15, the House Ways & Means Committee held a hearing on the credit. The complexity of the credit and its low usage were highlighted by the witnesses. For a brief summary, see Journal of Accountancy article (AICPA Tax Division Chair Patricia Thompson testified for the AICPA).
Why these problems with the credit? There are a few:
- Special rules intended to apply to a target, narrow population require detailed terms to define that population and what qualifies for the credit and what does not.
- Existing definitions were not used. Throughout the federal income tax there are definitions of "small" yet none of those definitions were used to for the health care credit.
- The premise is flawed - why perpetuate a decades old circumstance that led employers to provide health insurance to employees? When will health care reform break this model that increases health care costs, provides a competitive disadvantage to US employers, makes the tax law inequitable in that employees with health insurance coverage from their employer get a BIG tax break while those who have to buy their own get little, it adds complexity to the law. (See a 2008 article of mine on this - "Pot of Gold in the Employer-Provided Healthcare Exclusion.")
What do you think? Should Congress try to simplify the credit or repeal it and find another solution to reduce health insurance costs to broaden coverage?