Beginning January 1, 2010, eligible small businesses, including tax-exempt organizations, may take a refundable credit to cover the cost of employees’ health insurance premiums. Passed as part of the Patient Protection and Affordable Care Act last March, the credit was designed to encourage small businesses and small tax-exempt organizations to provide or maintain health insurance coverage for their employees.
The credit for tax-exempt employers can be up to 25% of premiums paid for tax years 2010 to 2013. After that, the potential credit increases to 35%. The credit is figured on Form 8941, which is attached to the tax-exempt entity’s Form 990-T.
To qualify for the credit, the tax-exempt employer must have fewer than 25 full-time equivalent employees and average annual wages of its employees cannot exceed $50,000. The employer must pay at least 50% of the cost of the premiums for each employee enrolled in healthcare coverage provided by the employer. HSAs, HRAs and FSAs are considered self-insured plans and are not health insurance coverage for purposes of the credit.
The following example illustrates how the credit is calculated for a small tax-exempt organization with 10 full-time workers with average annual wages of $24,000. If yearly healthcare premiums are $80,000, the organization’s refundable credit for 2010 would be $20,000 ($80,000 x 25%). For 2014, the organization’s credit would be $28,000 ($80,000 x 35%). Remember, this is a refundable credit, and regardless of the fact that your organization is tax-exempt, you are eligible to receive a refund equal to your credit if you meet the strict IRS requirements.
For more information on how to claim the new Small Business Healthcare Credit, please contact Tod Wilson at firstname.lastname@example.org or your Schneider Downs representative at (614) 621-4060 (Columbus or (412) 261-3644 (Pittsburgh).
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.