The Health Care Tax Credit is Nothing to Sneeze At
Has your not-for-profit organization taken advantage of the new health care tax credit? If not, you may be missing out on an opportunity to keep your organizations employees and your bottom line healthy.
Under the Affordable Care Act that was enacted on March 23, 2010, a new small business health care tax credit is now available to both small businesses as well as small tax-exempt organizations and is targeted to those employing low and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or to maintain coverage that they already provide.
An employer may qualify if it:
- Covers at least 50 percent of the cost of health care coverage for some of its workers (based on the single rate),
- Employs less than 25 full-time equivalent (FTE) individuals, and
- Pays average annual wages below $50,000
- Tax-exempt organizations that are described in § 501(c) and exempt from taxation under § 501(a) are eligible to claim the credit.
So what are the details in taking the credit?
- The credit is worth up to 25 percent of premium costs in 2010 for tax-exempt employers and 35 percent for small businesses and is effective through 2013.
- The credit increases to 35 percent for tax-exempt employers and 50 percent for small businesses in 2014.
- The credit phases out for employers with between 10 and 25 FTEs and for employers with average annual wages between $25,000 and $50,000.
- Also, the amount of the employer’s premium costs that counts for purposes of the credit is capped by the applicable state’s average small group market premium costs.
Since the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.
Let’s look at an example:
Let’s say this organization is an animal rescue shelter
- Employees: 8
- Wages: $180,000 total, or $22,500 per worker
- Employee Health Care Costs: $65,000
In 2010 the animal rescue shelter will receive a tax credit of $16,250 ($65,000 x 25%). The credit will remain 25% through 2013. In 2014 the animal rescue center will receive a tax credit of $22,750 ($65,000 x 35%)
So how do you take the credit?
Both tax-exempt organizations and businesses will use Form 8941 to calculate the credit. Then, tax-exempt organizations will include the refundable credit on Form 990-T while businesses will include the credit as part of the general business credit on their income tax returns. See www.IRS.gov for more detailed information.
As always, if you have questions or need assistance to determine if your organization or business qualifies for the health care tax credit, you can contact me at [email protected] or 312.670.7444.