Have you heard about the Tax Exempt Small Employer Tax Credit?
You still have time for file for the credit!
What is the Tax Exempt Organization Health Care Credit? This credit for Tax Exempt organizations began in 2010 and will run until 2014. The deadline to file for this credit is May 15, 2013. Most churches don’t realize that they qualify and can easily file for this credit that was created to encourage small business employers to provide health insurance for their employees. When you begin to read the instructions, it can make your head spin, but it can be done and you can receive a check from the IRS! My church is a medium size church with a moderate size staff and we have filed and received our check form the IRS for 2010 and 2011. I just completed the filing for 2012 and decided to write this article to help others understand it and file for the credit.
To qualify for the credit you must have less than 25 full time equivalent employees, and the average salary must be less than 50k annually. You also must pay at least 50% of the employee’s health insurance premium from a qualified health insurance provider. We will provide the information about which providers qualify. The credit is reduced by a factor as you exceed 10 FTE, and as you exceed 25k and reach the 50K salary threshold. We will explain as we go. A church with a staff that is a combination of ordained and non-ordained is the best candidate to receive this credit. I developed a simple spreadsheet that enables a church to easily calculate the following:
- How many Full Time Equivalent employees do I have?
- What is the average salary for my staff?
- How much did I pay for the Health Insurance premiums for my staff?
- How much Federal withholding, medicare withholding, and matching funds did I pay for the year?
- What is my credit and what forms do I use to file for the credit?
The most fascinating part of calculating this credit is that ordained clergy are counted as employees for the premiums, but their wages are not counted for calculating the average salary. The non-ordained employees salaries are counted and averaged to arrive at the figure for the annual average.
How many Full Time Equivalent employees do you have?
Simply create a spreadsheet and list all of your full time and part time employees. This list includes the ordained and non-ordained staff members. Ordained ministers that work for a church are considered employees for this credit. Then you make a column that will calculate the total hours for the year that this employee worked in 2012. A full time (40) hour employee works 2080 hours a year. If they work 32 hours or 24 hours a week simply multiply the hours X 52. If they worked part of the year, you can still calculate the number of hours based on their schedule and number of weeks they were on staff. You add all the hours in the column for all the staff and divide by 2080. You then need to round down to the next whole number ( 9.95 = 9 FTE). Trust me this is correct and in the instructions!
What is the average salary for my staff?
Make a column and list the annual salaries of the non-ordained staff! This is very important as the ordained staff wages are considered self-employment wages for social security and medicare purposes, and are not counted. The total of the salaries listed are then averaged by the number of non-ordained employees. This number verifies that your average qualifies for the credit.
How much did I pay for premiums for our staff?
Make a column and list the premiums you paid for healthcare for 2012 for your staff. As you can see from the spreadsheet not all the employees subscribed or qualified for health insurance. You can also see that the staff that had health insurance was a mixture of ordained and non-ordained staff. Only the premium that the church paid for health insurance qualifies, and it must be at least 50% of the employee premium. If you have an HSA plan, only the premium cost qualifies, not the funds that you might put into their account as an employer contribution. You can obtain these figures from your financial statements, or Quickbooks for Jan – Dec 2012. Now for tax exempt organizations (churches and non-profit religious organizations) for 2012 get a 25% credit for those premiums. This credit will increase to 35% for 2013. You can see from the spreadsheet the total of premiums was 56,874 and a 25% credit is 14,219.
How much did the church withhold for Federal, Medicare, and matching funds?
The credit that a church receives is limited to the total of Federal withholding, medicard withholding, and medicare matching funds. These totals can be found on you master form for the W2s that were filed for 2012. The calculation for the medicare matching funds is very simple, as it matches the amount that was withheld! Compare the 25% credit number to the total funds withheld and enter the smaller of the two numbers. There is another little caveat to this calculation. Some clergy voluntarily elect to withhold federal tax to assist with their tax liability at the end of the year. These funds have to be deducted from the total Federal withholding number to be accurate. They do not qualify for the credit calculation.
What Forms do I use to file for the credit?
There is an IRS form 8941 which is a worksheet that you fill out from your spreadsheet as you now have all the information that it requires. It is one page and fairly simple to fill out. In the instructions for form 8941 they provide a table for your state that will assist you in calculating the number to put on line 5. You also will use the same calculations that you used to find FTE, for the number on line 14. (See the spreadsheet and find 13,104 divide by 2080=6FTE) This form is filed with an IRS form 990-T. This is very important!! All you have to fill out on the form 990-T is the top portion with your organization info, write “Filing for the Health Insurance Credit only” on the very top of the form, tax ID number, Check Box B, D, G -Then go to page 2 and put the credit amount on line 44f, 48, 49, Sign and date at the bottom, Cross out schedules C-I write “N/A” attach the worksheet and send to the IRS.
Where do I file the form?
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0027