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Is Your Nonprofit Missing Out On This Tax Credit?

January 28, 2015

Many organizations offer health benefits to their employees. In doing so, those that qualify as a “small employer” may be eligible for a benefit of their own: the small business health care tax credit.

The small business health care tax credit first became available in 2010 and, according to the IRS, can be claimed by eligible organizations through 2013 and for two additional years beginning in 2014. Essentially, the credit offsets some or all of an organization’s taxable income. Even if an organization does not have taxable income for the tax return period, it may still be eligible for a monetary refund — as long as the refund does not exceed the total of its employees’ federal income tax withholding and the organization’s Medicare tax liability.

Is your organization eligible?
To qualify for the small business health care tax credit, the IRS states your organization must either be a taxable employer or an organization described in section 501(c) or 501(a) of the Internal Revenue Code. Also, as of the 2014 tax year, your organization must purchase its healthcare plan through the Health Insurance Exchange.
In addition to these stipulations, there are three main criteria — as outlined by the IRS —your organization must meet:

1. Your organization must pay premiums on a policy for employee health insurance under a qualifying arrangement.
This means that the employer offering the insurance policy must pay premiums for each employee enrolled in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage.

2. Your organization must have fewer than 25 full-time equivalent employees (FTEs) for the taxable year.
The number of FTEs can be calculated by adding the number of employees based on their level of employment: full-time employees receive a full count; half-time employees receive a half count.

3. The average annual wages of your organization’s employees must be less than $50,000 per FTE.
This amount is calculated by taking the total wages paid, excluding wages received from disqualified employees, and dividing it by the number of FTEs. However, based on how close the average annual wages are to the threshold, there is a slight phase-out range.

If you think your organization may qualify for this credit, let your tax professional know as soon as possible. He or she can help you estimate its amount and identify ways it could positively affect your organization, which could include reducing tax owed or bringing about an unplanned refund.

Needless to say, the small business health care tax credit is a benefit your organization shouldn’t pass up.

Jack Abdo, CPA, is AEM’s Nonprofit Segment Leader. A true “numbers guy,” Jack’s passion for balance sheets is second only to his passion for helping nonprofits further their mission. You can reach Jack at 952.715.3051 or at jack.abdo@aemcpas.com.

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