Small Business Health Care Tax Credit applies to tax-exempt organizations
Posted 6-2-2010 | By Anthony Oster
The new health reform law gives a "Small Business Health Care Tax Credit" to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. The "Small Business Health Care Tax Credit" is available to qualified tax-exempt organizations; however, special rules apply in calculating the credit for a tax-exempt organization. A governmental employer is not a qualified employer unless it is an organization described in Code Section 501(c) that is exempt from tax under Code Section 501(a). The credit is retroactive to tax years beginning in 2010 and therefore is available for the full calendar year of 2010 (for calendar-year taxpayers).
The refundable credit is available to small employers that pay at least half the cost of single coverage for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low and moderate income workers. For eligible tax-exempt organizations, the maximum credit amount is 25 percent of premiums paid for 2010 through 2013. The maximum credit amount will increase to 35 percent in 2014 and 2015, although many additional requirements will apply in those two years.
Generally, an eligible tax-exempt organization is one that:
- pays at least half the cost of single coverage,
- employs less than 25 full-time equivalent employees (seasonal workers are disregarded in determining full-time employees), and
- pays an average annual salary of less than $50,000.
The maximum credit applies to those tax-exempt organizations with no more than 10 full-time employees (FTEs) paying average annual wages of $25,000 or less. The credit phases out as the number of FTEs increases from 10 to 25 and as average annual wages increase from $25,000 to $50,000.
The credit is a refundable credit, so 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). The IRS is expected to issue further guidance on how tax-exempt organizations will actually claim the credit.
For more information, please contact Tony Oster, CPA at 651-407-5852 or aoster@hlbtr.com.