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Small Employer Health Credit Update

by Brenda Peluso

We were thrilled when nonprofits were included in the Small Business Credit portion of the Patient Protection and Affordable Care Act, also known as Health Care Reform.  We are slightly less thrilled with the complicated manner in which the credit is calculated and how difficult it is to actually qualify for the full 25% credit.

Thankfully, the National Council of Nonprofits has created an entire page on the subject and we encourage all small nonprofit employers to calculate their potential 2010 credit.

If you employ fewer than 25 employees and pay at least 50% of the insurance premiums for your employees at the single (employee-only) rate, then gather your payroll data and visit NCN’s Small Employer Health Credit webpage.

The IRS has yet to publish the payroll tax forms on which you will claim this credit, but this new form is expected very shortly.  In the meantime, calculate your credit and know that the entire 2010 credit may be claimed on the remaining quarterly tax forms.

6 thoughts on “Small Employer Health Credit Update

I’m assuming that this would apply only to non-profits that unrelated business income that they pay taxes on. If we don’t pay any taxes as a 501(c)(3), I assume that the federal government isn’t going to give us money back, right???

Brenda Peluso says:

Hi Sarah – thanks for your question. This applies to all nonprofit employers as the credit is taken against payroll taxes and 501(c)(3)s with employees do pay payroll taxes.

“The IRS has yet to publish the payroll tax forms on which you will claim this credit, but this new form is expected very shortly.”

Details can be found here: http://www.councilofnonprofits.org/public-policy/federal-policy-issues/health-care-reform/small-employer-health-credit

So, is there actually an application to apply with? Do we have to ask for this credit (or apply) to get the credit?

Thanks,

Hildie

Brenda Peluso says:

Hi Hildie – My understanding is that the IRS will be issuing new payroll tax forms (soon I hear) that will provide a place for nonprofit employers to enter the amount of the credit and subtract that credit from the amount due in quarterly payroll taxes. However, this is all they are saying:

17. How does an employer claim the credit?

A. The credit is claimed on the employer’s annual income tax return. For a tax-exempt employer, the IRS will provide further information on how to claim the credit.

20. Can a tax-exempt employer claim the credit if it has no taxable income for the year?

A. Yes. For a tax-exempt employer, the credit is a refundable credit, so that even if the employer has no taxable income, the employer may receive a refund (so long as it does not exceed the income tax withholding and Medicare tax liability, as discussed in Q/A-6).

6. What is the maximum credit for a tax-exempt qualified employer?

A. For tax years beginning in 2010 through 2013, the maximum credit for a tax-exempt qualified employer is 25 percent of the employer’s premium expenses that count towards the credit, as described in Q/A-3. However, the amount of the credit cannot exceed the total amount of income and Medicare (i.e., hospital insurance) tax the employer is required to withhold from employees’ wages for the year and the employer share of Medicare tax on employees’ wages for the year.

All of these Q&A’s can be found at: http://www.irs.gov/newsroom/article/0,,id=220839,00.html

Diana Joyner says:

The IRS.gov website talks about an average FTE salary of less than $50,000 for the nonprofit. Does that mean that only full time employees are included in the calculation (we have several part time who do not qualify for medical coverage)? Also, if an employee is covered under their spouse’s plan, is their salary also considered part of the average salary calculation?

Brenda Peluso says:

Hi Diana – here is what the National Council of Nonprofits is reporting:

What employees do I count?
To determine the number of full-time equivalent employees, divide the total straight-time hours of paid work at your organization by 2080 (40 hours for 52 weeks). Overtime hours worked are not included in the calculation. Presumably salaried workers should be counted as working 2080 hours, but this will be clarified in the future by the Secretaries of the Treasury and Labor. The hours of leased employees are included, but you don’t count relatives and dependents of fiduciaries, nor seasonal workers working fewer than 120 days (such as camp counselors).

What wages count?
Total wages paid, divided by the number of full time equivalents. The amount is rounded down to the nearest lowest multiple of $1,000.

So, almost everyone counts in this calculation regardless of how many hours they work and whether or not they qualify for benefits.

The IRS’s FAQ (questions 10 – 16) gives more detail on this: http://www.irs.gov/newsroom/article/0,,id=220839,00.html

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