Credit for Small Employer Health Insurance Premiums

As a part of the Patient Protection and Affordable Care Act signed into law by President Obama in March 2010, small employers may qualify for a refund of a portion of the health insurance premiums they have paid.

The UCC Pension Boards provides an excellent general introduction to the Health Care Tax Credit at http://www.pbucc.org/interior_art.asp?id=Small_Employer_Health_Care_Tax_Credit .

This refund may be claimed by filing IRS Forms 8941 and 990-T. This memo, along with this spreadsheet, should provide the information needed to calculate the figures required for both forms. However, it includes a standard disclaimer: 

This memo and spreadsheet seek to provide current and accurate general information for churches regarding the Small Employer Health Insurance Premiums Credit. However, if you are seeking tax advice regarding your church, you may wish to consult an accountant who can review your situation personally and offer her or his professional and specific advice to your congregation.

The accompanying documents can be accessed through the following links:

1) IRS Form 8941, available at www.irs.gov/pub/irs-pdf/f8941.pdf
2) IRS Form 8941 instructions, also available at www.irs.gov/pub/irs-pdf/i8941.pdf
3) IRS Form 990-T, also available at www.irs.gov/pub/irs-pdf/f990t.pdf
4) A spreadsheet for calculating the data for each line, at http://macucc.s3.amazonaws.com/713EC82AF15046E2A990C119FB43A3F7_8941%20Worksheet.xls
5) Instructions for the spreadsheet, at http://macucc.s3.amazonaws.com/3A7AA7ACC03149AD876F63FFBAB0BCBB_8941%20Worksheet%20Instructions[1].pdf
6) A summary prepared January 6, 2011 by the legal team of the Church Alliance, which is made up of the CEOs of all denominations in the Church Benefit Association. (Note that the heading on each page is dated 1/6/10 in error.) This 8-page summary provides a detailed explanation of the tax credit, as well as who is eligible to claim it.
See http://macucc.s3.amazonaws.com/8DA76427BB7848538A4EF74DCF622D8C_Church%20Alliance%20summary[1].pdf

To qualify for the tax credit, an employer must:

1) Pay for a portion of its employees’ health coverage.
a. The employer’s portion must be at least 50% of the premium for single (employee-only) coverage.
b. The percentage must be uniform for all covered employees – that is, if you pay 100% for the full-time pastor’s insurance, you have to pay 100% for every full-time employee unless they have waived coverage. Note that for 2010 only, the percentage does not have to be uniform as long as it is above 50%.
2) Have fewer than 25 full-time equivalent employees
3) Have non-clergy average wages per full-time equivalent employee of less than $50,000
4) Make federal tax deposits for federal withholding or Medicare (employee portion and employer portion)

The spreadsheet will allow you to check to see if your church is entitled to a credit. It will calculate the amount of the credit and generate the line-by-line figures for IRS Form 8941 and IRS Form 990-T.

IRS Form 990-T is due by May 15th for those with a fiscal year ending December 31st, or 4.5 months after the fiscal year end. No matter when your fiscal year ends, the tax credit is for premiums paid between January and December 2010.

Please note that only one form 990-T and 8941 may be filed for a legal entity. If you operate a nursery school or thrift shop or other program that you consider to operate independently of the church, you should verify that the school or shop is indeed a separate legal entity before filing these forms. Filing two sets of forms for one corporation or unincorporated association would result in inaccurate information being filed with the IRS.
If you do not qualify for a 2010 tax credit, this spreadsheet may help you to determine whether any personnel policy changes during 2011, 2012, or 2013 would make a difference in the calculation of your tax credit.

• For example, a small church may not qualify for the tax credit if federal withholding tax is minimal. This may occur if the pastor pays his or her federal taxes through estimated quarterly payments. However, if the pastor were to choose voluntary federal withholding, it could make a difference to the church of over $3,000.

• For example, a church with a full-time pastor, .33 FTE administrator, .25 FTE organist, and full-time custodian that offers health insurance to its pastor only, and therefore does not offer a uniform benefit and does not qualify for the tax credit may find that offering that coverage uniformly to all employees who work half-time or more results in a $4,500 tax credit.

I hope this information is helpful to you and your congregation. If you have further questions, please contact Karen McArthur at karen@congregationalfinance.com.

***This work was made possible by contributions to the MACUCC Friends of the Conference Fund.***