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Health Care Credit Available for Churches and Not-For-Profit Organizations

December 10, 2011  |  health insurace tax credit church not-for-profit
Ritva Williamson, CPA -Stephenson & Warner Inc.,

The IRS sent millions of postcards to small businesses and tax-exempt organizations making them aware of the benefits of the small business health care tax credit. This credit, included in the Patient Protection and Affordable Care Act, is designed to encourage small employers to offer health care coverage for the first time or maintain coverage they already have.

Since this credit became available our firm has taken a close look at our small business clients’ eligibility, both for-profit businesses and non-profit organizations, and we have been able to claim this credit in several instances. Our on-going and long-term business relationships, the fact that we provide a multitude of services to our clients and handle our clients’ needs from accounting services, payroll services, to all tax related filings, to mention a few, made the preliminary testing of eligibility relatively easy. Some of our clients were very surprised that they qualified.

Churches, even though they may not need to file Form 990-T to report unrelated business income, qualify if they meet the eligibility requirements. A church organization which pays at least 50% of health care coverage for some of its employees under a “qualifying arrangement”, has fewer than 25 full-time equivalent employees, and whose average annual wages of its employees is less than $50,000, are eligible to claim and receive the credit.

The mechanics of calculating the credit can be intimidating and cumbersome. What does “full-time equivalent employee” mean? How do we calculate average annual wages? How do we factor in part-time employees or seasonal employees? What is and what’s meant by “the average state premium for the small group market”? The “what and how” may deter many eligible church organizations from claiming the credit.

Those churches which file Form 990-T and have a tax liability this credit offsets the tax liability. The churches which do not have to file at all, this credit is refundable, it is cash in the pocket. But, Form 990-T and Form 8941 need to be prepared and filed to claim the credit.

If you would like to discuss your organizations eligibility, please contact our non-profit tax specialist, Ritva Williamson, CPA, to help you with this particular topic and any other non-profit tax matter you may have.