Small businesses failing to take advantage of ACA tax credit


From working capital loans to tax incentives, small business owners must do all they can to ensure they have steady cash flow and the resources to help the company grow. There are a variety of alternative lending options to provide small business loans for an organization, and there are several tax credits available, such as Section 179 of the IRS code that lets companies deduct the cost of capital expenses.

However, not enough small businesses are taking advantage of a tax credit to boost their cash flow, and that’s the Small Employer Health Care Insurance Tax Credit. According to the report “Small Employer Health Tax Credit: Limited use Continues Due to Multiple Reasons” authored by the U.S. Government Accountability Office, not nearly enough employers that are eligible for the credit are utilizing it. In 2014, out of an estimated range of 1.4 million to 4 million, only approximately 181,000 small businesses received the credit. Even the 2014 total represented a slight dip from the total in 2010, when 188,303 employers took advantage of the credit.
Despite a $2 billion estimate from the Congressional Budget Office and the Joint Committee on Taxation, the total claims number only amounted to $468 million.

How it works
Small businesses are eligible for the credit if they pay an average of less than $50,000 a year to fewer than 25 full-time equivalent employees, and cover at least half of these individuals’ health insurance premiums. If a company meets these requirements, it can obtain 50 percent of premiums paid by the employer. This credit is available to eligible employers for two consecutive taxable years.

By not taking advantage of this major opportunity for savings, many small employers are essentially turning away free money. However, while some owners might merely be opposed to the incentive and providing health care for their employees, there are also not enough companies that are aware of the benefits associated with the program. Further, many of the provisions of the tax program might not be enticing enough for some owners.

What went wrong?
In addition, since it can only be claimed for two consecutive years, some owners are eschewing the credit, since they feel this can potentially skewer their budgeting projections and accounting. Further, many small business owners claimed the filling out paperwork for the credit was too complicated and complex.

As noted by Accounting Today, the Obama administration and Congress have announced several changes to the credit, including altering the phase-out rules, extending the period when the credit can be claimed to more than two years and expanding the size of eligible employers

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