Nonprofits May Qualify for Small Employer Health Care Tax Credit

by Renae Pappas, Minnesota Council of Nonprofits communications intern, for Nonprofits News Winter 2011

In March 2010, the Affordable Care Act was enacted to encourage small business and tax-exempt organizations to offer health insurance to their employees for the first time or continue the health care coverage they already provided.

According the the IRS, organizations can claim a credit for 2010 through 2013 and for any two years after that. Maximum credit during those tax years is 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 35 percent.

The IRS states that employers with 10 or fewer full-time equivalent (FTE) employees - paying annual average wages of $25,000 or less - qualify for maximum credit. Organization that have 25 or more FTEs or that pay average wages of $50,000 or more per year are not eligible to receive credit. It is important to note that eligibility is partially based on the number of FTEs and not the number of employees. Therefore organizations with part-time workers may have more than 25 employees and still qualify for the credit.

Form 8941 is used to figure the credit for an organization. Organization then claim the credit on Line 44f of Form 990-T. Instructions for Form 8941 and Notice 2010-82, both of which help organizations figure and claim this health care tax credit, are available on the IRS website.

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