Credit for Small Employer Health Insurance Premiums Available for Tax-Exempt Entities

Beginning in 2010, certain small employers can claim a credit for health insurance premiums paid.  If a taxpayer qualifies, the credit can be used to reduce any federal income tax owed.  A tax-exempt organization can also qualify for the credit.  In the case of a tax-exempt organization, no tax is owed; therefore, the tax cannot be reduced.  Instead, a tax-exempt organization can be issued a cash refund.

A taxpayer calculates the credit on Federal Form 8941.  For tax-exempt small employers, the credit is generally 25% of premiums paid, and is limited to the amount of certain payroll taxes paid.  A tax-exempt entity then transfers the credit to Form 990-T (Exempt Organization Business Income Tax Return) to claim the refund.   If an organization was eligible for the credit in the past, a refund claim can be made for any open tax years (generally three years). 

In general to qualify for the credit, an organization must meet three requirements:

  • The organization must have paid premiums for employee health insurance coverage under a qualifying arrangement.  A qualifying arrangement is generally an arrangement that requires you to pay a uniform percentage (not less than 50%) of the premium cost for each enrolled employee’s health insurance coverage.
  • The organization must have fewer than 25 full-time equivalent employees.
  • The organization must have paid an average annual wage for the tax year of less than $50,000 per full-time equivalent employee.

If you work for or are associated with a tax-exempt small employer and would like more information, please contact the tax professionals at Schneider Downs.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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.

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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