The Treasury Inspector General for Tax Administration (TIGTA) is concerned that the IRS is not prepared to combat the onslaught of tax fraud that is anticipated once the IRS begins paying premium tax credits associated with the Affordable Care Act (ACA). TIGTA recognizes that the IRS has systems in place to combat fraud in general; it has always been one of their top priorities. But specific ACA fraud is another story. The IRS is not prepared for this new responsibility which is bound to reveal unforeseen nuances. The IRS has tested its systems that compute subsidies under ACA and the testing revealed flaws that could result in the IRS being unable to identify fraud prior to the issuance of credits. In plain English, what this means is there is a significant risk that the IRS will inadvertently pay out credits to people who don’t really qualify. According to the IRS, they have already made system corrections prior to the issuance of today’s report and they will be prepared.
The health care coverage mandates under the Affordable Care Act are scheduled for January 1, 2014. So what will it mean for business owners?
The small business health care tax credit is the carrot for small business owners to contribute to their employee’s health care. Beginning in 2014, Uncle Sam’s carrot for small businesses that pay at least half of their employee premiums for qualified health insurance coverage, and employ 25 or fewer workers with an average income of $50,000 or less, is a tax subsidy on the health insurance premiums they pay.
The maximum qualified subsidy is 50% and is available to small businesses with an average payroll for full-time equivalent employees of $25,000 and ten or less full time employees. The subsidy is presently scheduled to be reduced by 3.35% per additional employee and 2% per additional $1,000 of average income.
Therefore, the savvy small business owner, who is doing good by contributing to their employee’s health insurance will be able reduce their expenses by paying careful attention to their workforce and wages paid. It may be necessary to consult with an experienced CPA or tax attorney for a more individualized understanding of these tax incentives.