By Siena Rambo
Could your church benefit?
For tax-exempt small employers, including churches, a tax credit up to 35% beginning in 2014 (an increase from 25% in prior years) of the cost of health insurance premiums paid by a qualifying employer for its employees may be available if certain requirements are met. This tax credit was initially available beginning in 2010.
Your church would qualify as an eligible employer if it meets the following 3 requirements:
- Has fewer than 25 “full-time equivalent employees” (FTEs) for the tax year;
- Average annual wages of employees for the year is less than $50,800 per FTE; and
- Pays premiums for health insurance coverage under a “qualifying arrangement.”
A qualifying arrangement generally is one that the employer pays at least half the cost of single coverage for their employees.
Employer contributions to health reimbursement arrangements (HRAs), health flexible spending arrangements (FSAs), and health savings accounts (HSAs) are not taken into account for purposes of the credit.
Ministers are usually included in determining the number of FTEs and premiums paid. However, the average annual wage calculation is based on wages subject to Social Security and Medicare tax withholding, and therefore the minister’s wages are not included in this amount. Some churches may be more likely to benefit from the credit since ministers are generally paid the higher wages.
IRS Form 8941, Credit for Small Employer Health Insurance Premiums should be used to claim this credit. The credit is claimed on line 44f of Form 990-T. An organization that files Form 990-T only to request a credit for the small-employer health insurance premium must write “Request for 45R Credit Only” across the top of the Form 990-T.
The Church & Clergy Tax Guide by Richard R. Hammar is an excellent source of information for topics and issues unique to churches.