Tax Administration:

Administrative Aspects of the Health Insurance Tax Credit

GGD-91-110FS: Published: Sep 12, 1991. Publicly Released: Sep 12, 1991.

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Pursuant to a congressional request, GAO provided information on the recently enacted health insurance tax credit, focusing on how the: (1) Internal Revenue Service will administer the credit; and (2) credit might be perceived by taxpayers.

GAO found that: (1) qualified health insurance expenses for which the earned income credit (EIC) is available are the amounts paid during the taxable year for health insurance coverage that includes one or more qualifying children; (2) unlike basic EIC, the health credit will remain the same regardless of the number of qualifying children in the family; (3) the maximum allowable credit is to be calculated on the basis of a percentage of earned income which, over the phase-in range, will be about 6 percent of earned income; (4) the taxpayer will be required to keep proof of payments or contributions toward health insurance; (5) taxpayers who itemize deductions must reduce their health insurance premium deduction by the amount of the credit, but since only about 3 percent of eligible taxpayers claimed a deduction for medical expenses in 1988, this is not likely to pose a problem; (6) self-employed taxpayers who claim both the health insurance credit and the self-employed deduction are required to reduce their deductible health insurance premiums by the amount of the credit; and (7) calculating both the deduction and the credit is a problem because the numbers are dependent on each other.

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