New Credit Helps Small Tax-Exempt Organizations Provide Health Coverage

Tax-exempt organizations that provide health insurance to their employees may benefit from the historic Patient Protection and Affordable Care Act signed into law on March 23, 2010. The Act provides for a special credit for eligible tax-exempt employers who pay at least half the cost of single coverage health insurance for their employees.
 
The maximum credit for tax-exempt organizations is 25 percent of the premiums paid by eligible employers. In 2014, the credit increases to a maximum of 35 percent.
 
The credit is available for small organizations that primarily employ low- to moderate-income employees. To be eligible, generally the organization must have fewer than 25 full-time equivalent (FTE) employees and pay wages on average less than $50,000 per employee per year. Tax-exempt organizations with 10 or fewer FTEs and paying average wages of $25,000 or less will receive the maximum credit.
 
Eligible tax-exempt organizations can begin claiming the credit on premiums paid from the beginning of 2010. The IRS will issue further guidance on how to claim the credit.
 
In the meantime, the IRS has released a "three simple steps" fact sheet that will help your organization determine eligibility, and it plans to send postcards to organizations that might be eligible for the credit.
 
For more information on the tax ramifications of the new healthcare legislation for non-profits, contact Barnes Dennig tax manager Paula Hume.