Tuesday, February 8, 2011

Small employer health care tax credit

Tuesday, February 8, 2011
Many of my small nonprofit clients have been asking about a postcard they received from the IRS regarding a new tax credit for providing health insurance for their employees. What I’ve told them was millions of small employers received these postcards from the IRS last year alerting them to the new small business health care tax credit, and encouraging them to check their eligibility. Whether or not you received this postcard, I encourage you to check your organization’s eligibility. I’ve outlined some of the basic criteria below (there are much more specific criteria as you can imagine with the IRS). In general, the tax credit is available to small employers that paid at least half the cost of single health care coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers afford the cost of health insurance for their employees.

Who is eligible for the health care tax credit?

  • A qualifying employer who covers at least 50% of the cost of health care coverage for some of its workers based on the single rate
  • A qualifying employer who has less than the equivalent of 25 full-time workers (e.g. an employer with fewer than 50 half-time workers may be eligible)
  • A qualifying employer who pays average annual wages below $50,000
What is the amount of credit for tax-exempt organizations?

  • 2010 – 2013: maximum credit is 25% of premiums paid by employer
  • 2014: maximum credit increases to 35% of premiums paid by employer
  • Phase-out – the credit phases out gradually for organizations with the equivalent of between 10 and 25 full-time workers and for organizations with average wages between $25,000 and $50,000.

How can my tax-exempt organization claim the credit?

  • Small employers, including tax-exempt organizations, will use new Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the refundable tax credit
  • Tax-exempt organizations will claim the credit on Line 44f of revised Form 990-T, Exempt Organization Business Income Tax Return. Form 990-T will be used by eligible tax-exempt organizations to claim the credit, even if they are not subject to tax on unrelated business income.
The following is an example of the tax credit calculation for a tax-exempt organization:

  • Employees: 9
  • Wages: $198,000 total, or $22,000 average per worker
  • Employee Health Care Costs paid by the Employer: $72,000


  • 2010 Tax Credit: $18,000 ($72,000 x 25%)
  • 2014 Tax Credit: $25,200 ($72,000 x 35%)
To determine whether your organization is eligible for the new health care tax credit and how large a credit your organization can potentially receive, please contact Elko & Associates. We are offering a complimentary analysis to determine your eligibility. If we find that you are eligible, we would be happy to discuss the details of preparing the necessary tax forms for you.


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