Tax-Exempt Organizations and the Small Business Health Care Tax Credit

On October 29, 2010, the Internal Revenue Service posted information on how tax-exempt organizations can claim the Small Business Health Care Tax Credit which was signed into law as part of the Patient Protection and Affordable Care Act (i.e. “Health Care Reform Bill”). This refundable credit is designed to encourage small employers to offer health care coverage for their employees. Qualifying employers are defined as follows:

1. A qualifying employer must cover at least 50% of the cost of health care coverage for some of its workers based on the single rate.

2. A qualifying employer must have less than the equivalent of 25 full-time workers (i.e. an employer with fewer than 50 half-time workers may be eligible). The credit phases out for organizations with the equivalent of between 10 and 25 full-time workers.

3. A qualifying employer must pay average annual wages below $50,000. The credit phases out for organizations with average wages between $25,000 and $50,000.

The credit is worth up to 25% of a tax exempt organization’s premium costs in 2010. A flow-chart of the credit calculation can be found at http://www.irs.gov/pub/irs-utl/3_simple_steps.pdf. The refundable credit is claimed by filing Form 990-T with an attached Form 8941 showing the calculation of the credit claimed. A draft of Form 8941 can be found at http://www.irs.gov/pub/irs-dft/f8941—dft.pdf. On January 1, 2014, the credit rate for non-profits increases to 35%.

Detailed answers to frequently asked questions are available on the IRS website at http://www.irs.gov/newsroom/article/0,,id=220839,00.html. Please contact your Elliott Davis advisor or a member of the Non-Profit Tax Team:

Denise Hill (dhill@elliottdavis.com or 803.255.1479)
Deron Stancil (dstancil@elliottdavis.com or 864.242.2615)
Brittany Owen (bowen@elliottdavis.com or 803.255.1474)

We will be happy to assist you with any questions or computations regarding the credit.