Update on Health Care Credit for Nonprofits

As you may already know, the small business health care tax credit is available starting in 2010 for churches and nonprofits that meet the eligibility requirements (fewer than 25 full-time equivalent employees and average wages less than $50,000). All employees of the church are considered, including ministers who receive a W-2. The IRS has now clarified the procedures for nonprofit organizations to claim the credit. The IRS will issue a refund to qualifying churches and nonprofit organizations for up to 25% of the cost of providing health insurance to employees. The 25% credit will increase to 35% in 2014. To claim the credit, nonprofit organizations must file Form 990-T and attach Form 8941. Form 990-T is the form used by nonprofit organizations to report taxable business income, and the Form 8941 is used to calculate the amount of the refundable health insurance credit. The credit is limited by the amount of Medicare tax paid in to the IRS and federal income tax required to be withheld from employee wages. Medicare tax paid includes both the amount withheld from employees, and the amount matched by the nonprofit organization.