A very beneficial tax break is available to certain small businesses and tax-exempt organizations. The health care reform act signed into law in 2010 contains a provision for a Small Business Health Care Tax Credit. This credit gives small businesses and not-for profit organizations a credit for the costs of health care coverage paid by the employer.
Basically the credit can be as much as 35 percent for eligible small employers and 25 percent for eligible tax-exempt organizations. Tax-exempt organizations may receive the credit as a cash payment or may be applied to payroll taxes. For a qualified small business or tax-exempt organization, this is something that should be investigated, and applied for.
The full credit is available for employers with ten or fewer full time employees and average annual wages of under $25,000. A partial credit is available if the organization has fewer than 25 full-time equivalent employees and an average wage of under $50,000.
Employees who perform services for the employer during the taxable year are generally taken into account. However, relatives and seasonal workers (less than 120 days) are excluded. In addition, if you are not an employee your wages, hours, and premiums do not count in the tally.
Hours of service during the year must be determined to get the full-time equivalent number. This may be done though counting actual hours, day-worked equivalency, or weeks-worked equivalency. 2,080 hours of service equals one full-time worker.
Wages are the total social security wages reported for each employee. For a church whose pastor has opted out of social security, this can help boost the credit significantly, as the minister’s SS wages would be zero and is included in the calculation of average wages.
The credit is for a percentage of the health insurance premiums paid by the employer, premiums paid by the employee do not count, nor do premiums paid under a wage-reduction plan count.
The credit is calculated on Form 8941. A tax-exempt organization that does not normally file a 990 would file a 990-T along with the 8941. The credit is available through 2013. Beginning in 2014, the credit amounts increase to 50% and 35% for businesses and tax-exempts, respectively. Additionally, beginning in 2014 the credit is available only if the insurance is purchased through an exchange.
If you would like more details on the credit, or if I can help you file for the credit, please feel free to contact me at firstname.lastname@example.org