written by Joe Page

Joe Page head shot

A provision of the recently enacted Patient Protection and Affordable Care Act provides a Small Business Healthcare Tax Credit. The tax credit is retroactive to January 1, 2010, and applies to certain not-for-profit entities.

The credit is designed to encourage smaller not-for-profit entities with low to moderate income employees to provide health care coverage for its employees. While the eligibility rules restrict the credit to relatively small organizations with low to moderate wages, the credit can be significant and possible allow the organization to provide health care benefits when it might otherwise be unable to do so.

To be eligible to receive the credit the small business or not-for-profit entity must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate. The small business or not-for-profit entity must have less than 25 full time equivalent employees and average annual wages must be below $50,000.

The credit is worth up to 25 percent (increasing to 35 percent in 2014) of the health care coverage premium costs of not-for-profit entities. The credit is phased out for firms with average annual wages between $25,000 and $50,000 and for firms with between 10 and 25 full time equivalent workers.

The credit is non-refundable and can be claimed against the not-for-profit entity’s payroll taxes.

Example (from www.irs.gov) – Not-for-profit entity with 9 employees each earning an average of $22,000 for total gross wages of $198,000 and paying a total of $72,000 in employee health care costs. The credit would be 25% of the $72,000 health care cost or $18,000.

If you believe your organization may qualify for the credit or would like additional information, please contact one the Whitlock Company employee benefit plan specialists.