Generally speaking, businesses with fewer than 25 employees that pay at least half of insurance costs for their employees can claim the credit. The businesses must also pay their employees an average wage of less than $50,000 a year.
With the credit’s reach not meeting expectations, the IRS has said it plans to further study why more taxpayers are not using the break.
The study also found that the IRS needed a more in-depth form for claiming the credit, as the current version did not contain all the necessary data.
With that in mind, the inspector general recommended, among other things, that the IRS seek more authority to deal with math errors, which it said would help weed out some of the incorrect credit claims.
“The Small Business Health Care Tax Credit is an important credit for both small business employers and their employees,” George said in a statement. “TIGTA’s recommendations, once adopted, should improve the IRS’s ability to verify claims for this credit.”
The IRS agreed with the report’s recommendations.
This post was updated at 2:39 p.m.