econscius

Tax Code and ObamaCare Credits So Complex, Many Firms Won’t Use Them

In Uncategorized on August 2, 2012 at 7:47 pm

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ObamaCare includes various tax increases and some tax credits.  Part of the expressed aim of the bill in to induce some mid-size employers to offer health insurance through tax credits, funded by tax increases on others.

One obvious flaw with the thinking is the tax code is already mind-numbingly complex.  The linked Wall Street Journal article is about many companies not even taking advantage of existing tax laws.  The rules are complex, taking a credit may invite an IRS audit and many tax breaks require copious time and paperwork.  I predict many employers will do the same with the ObamaCare bill’s credits, as they look at costs and benefits and then factor in the complexity of the credits and related IRS audit flags and hassle.

In the Washington, DC vacuum that allows a President to think “the private sector is doing fine” or entrepreneurs “didn’t build” their businesses, no one presumably thinks about the actual businesspeople who have to live with these laws.  If pols did, they’d think twice about yet more tax rules.

“One example of the tough-to-take breaks is the federal Work Opportunity credit. It was designed to reward companies for hiring workers from several disadvantaged groups, including welfare and food stamp recipients, youths seeking summer jobs and ex-felons. The break typically lowers a company’s taxes by up to $2,400 per employee. For businesses hiring unemployed veterans, it can be worth as much as $9,600 per worker.

 

The credit frequently goes unclaimed, largely because it is such a hassle. It requires extensive paperwork for each worker for whom it is claimed and the paperwork can often take a year or more to process. Sarah Hamersma, a University of Florida professor, estimates that companies claim the credit for just 20% to 35% of all eligible workers.

 

J.J. Pledger, chief financial officer for the Twisted Root gourmet burger chain in the Dallas-Fort Worth area, said he spent the better part of a day last year trying to figure out how his company could obtain the credit. Mr. Pledger, a CPA, knew the credit likely would be available for a number of his company’s 200 or so annual hires. But the more he read, “it seemed like the documentation of the tax credit could be really hard to administer,” he recalled. One concern was all the personal information needed from job applicants. “So I put it on the back burner…. It seemed too daunting.” [1]

[1] article is free, no paywall.  http://online.wsj.com/article/SB10000872396390444025204577543060812237798.html

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  1. My employer’s accounting firm opted for the credit in 2010 and 2011 and guess what… our IRS audit for both years is Oct 10th. Very good piece. Good information and well written. Thank you!

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