Refundable Health Care Credit Available to Tax-Exempt Organizations

Small employers, including tax exempt organizations, may qualify for a tax credit to reimburse a portion of the cost of employer-provided health insurance as a result of the Patient Protection and Affordable Care Act enacted on March 23, 2010.

For tax exempt employers the credit is "refundable" meaning employers qualify for the credit despite the fact that they may have no taxable income or income tax liability. For tax exempt organizations, the credit is claiimed as an offset against federal income tax withholding and both the employer and employee share of the 1.45% Medicare tax. The credit is claimed by filing IRS Form 990T.

This credit is available to 501(c) organizations that are exempt from income tax under Section 501(a) and meet the following three criteria:

1) Employ less than 25 full time equivalent (FTE) employees during the year, and;

2) Pay average wages per FTE of $50,000 or less, and;

3) Contribute a uniform percentage of at least 50% toward employee health care premiums.

The tax credit amount, which is shown below, is based upon a percentage of the health insurance premiums paid:

2010-2013 25%

2014-2015 35%

Organizations that believe they meet the criteria to qualify for this credit should contact Smith Schafer. Our professionals can assist in calculating the amount of the refund and process the filing of the refund with the IRS.

2010 Final Year of IRS Filing Threshold Phase-in

For tax years beginning in 2010 and after, fewer non-profit organizations will be able to file Form 990-EZ as the thresholds have decreased to the following:

Form 990-N (Postcard) - Gross receipts of $50,000 or less.

Form 990-EZ - Gross receipts less than $200,000 and total assets less than $500,000.

Form 990 - Gross receipts of $200,000 or more or total assets of $500,000 or more.

New Estate Tax Law May Impact Charitable Giving

Estate tax law seems to be an ever changing proposition. For 2010 there was no federal estate tax, while 2011 was set to return to pre-Bush tax cut rules which set the estate tax exemption at $1 million per person. The latest installment that was signed into law on December 17, 2010 sets the exemption amount at $5 million per person (or $10 million dollars per couple) for deaths in 2011 and 2012. In other words, estates valued at less than $10 million for a couple will not be subject to federal estate tax.

These changes will likely have an impact on charitable giving. The increase in the exemption will mean fewer individuals may consider the option of charitable giving as a means to reduce their net worth and avoid federal estate tax. This is not to imply that tax incentives are the primary reason for charitable giving, but there are studies indicating they do have a positive effect.

Future of the Charitable Deduction

The current economic conditions have prompted federal and state governments to look for ways to increase tax revenues. Recent activity suggests that the future of the charitable deduction is up for discussion. The Obama administration proposed cutting the charitable deduction in both their 2010 and 2011 budgets. The state of New York passed a revenue bill that limits the amount of charitable deductions for New Yorkers. The deficit commission established by President Obama proposed eliminating the charitable deduction in favor of a 12% tax credit for those with charitable deductions in excess of 2% of adjusted gross income.

Lawmakers willingness to even discuss changing or eliminating one of the tenents of our tax code is a strong signal that the future of the charitable deduction is not guaranteed.

For More Information...

For more information on these topics, please contact our audit team at the Smith Schafer office nearest you at one of the phone numbers listed below.

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