CPA & Business Advisory Blog

Nonprofits May Qualify for Small Employer Health Insurance Tax Credit

In 2010, the Affordable Care Act was enacted to encourage small businesses to offer health insurance to their employees.  Did you know that tax-exempt organizations may also be eligible for the credit?

Tax exempt organizations can claim the credit for 2010 through 2013 and for any two years after that. The maximum credit for nonprofits is 25 percent of the health insurance premiums paid by eligible organizations.  The maximum credit will increase to 35% beginning in 2014.

In order to be eligible, the organization must have fewer than 25 full-time equivalent (FTE) employees, pay average annual wages of less than $50,000 and pay at least 50% of the employees' health insurance premiums.  Note that eligibility is based on the number of FTEs rather than the number of employees.  Therefore, organizations with part-time employees may have more than 25 employees and still be eligible.  Organizations with 10 or fewer FTEs, paying annual average wages of $25,000 or less, will qualify for the maximum 25% credit.  For organizations with 11-24 employees and/or with average annual wages higher than $25,000 but less than $50,000, the credit will be subject to phase out limitations.

Form 8941 is used to calculate the credit.  Tax-exempt organizations then claim the credit on line 44F of Form 990-T.  Even if the organization does not typically file Form 990-T, it may do so for the sole purpose of requesting the credit and receiving a refund.

For more information on whether or not your organization may qualify, post a comment below or contact our Tax Planning & Preparation services group at 440-449-6800.

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