As part of the Affordable Care Act enacted in March 2010, the Health Care Tax Credit for Small Employers is designed to encourage both small businesses and small tax-exempt organizations (like churches) to offer health insurance coverage to their employees for the first time or maintain coverage they already have.
However, interested churches need to act fast if they desire to apply – the deadline for filing applications is May 15, notes Elliott Johnson, controller for the Evangelical Covenant Church. The tax credit applies to tax year 2010 and beyond.
Johnson says that, in general, the credit is available to small employer churches that pay at least half of the premiums for single health insurance coverage for their employees. Other qualification criteria include withholding federal income taxes and/or Medicare taxes, employing fewer than 25 full-time equivalent employees (including clergy if they receive a W-2 form), and average employee FICA wages that total less than $50,000.
Small businesses – including churches – can claim the credit for tax years 2010 through 2013 and for any two years after that, according to Internal Revenue Service guidelines. For tax years 2010 to 2013, the maximum credit is 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 35 percent of premiums paid by eligible tax-exempt organizations.
The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.
“Assessing eligibility (evaluating the qualifying criteria) and completing the necessary calculations can be confusing,” Johnson says. Local church staff seeking help with this assessment can email Johnson. Additional information also is available from the Health Care Tax Credit for Small Employers page on the IRS.gov website. To access two required forms, visit Form 990-T and Form 8941.
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