Is Your Organization Eligible for the Small Employer Health Care Tax Credit?

Posted 4/19/2010

The Patient Protection and Affordable Care Act, the new federal health insurance law enacted on March 23, 2010, provides for tax credits for eligible small employers, including non-profits, for health insurance premiums paid for employees. The Center for Non-Profits, along with the National Council of Nonprofits, Independent Sector and other advocates, fought hard for inclusion of non-profits in the tax health care credit for small employers.

In order to be eligible for a tax credit:

  • The employer must pay at least half of the insurance premiums for at least some employees at the single (employee-only) coverage rate.
  • The number of FTE's (full-time equivalent employees) must be fewer than 25; and
  • The average annual wages per employee must be less than $50,000.

Eligible tax-exempt organizations can take a credit of up to 25% against the employer portions of Medicare and employee's income taxes withheld from the employee. Employers with fewer than 10 employees and less than $25,000 annual wages per employee will qualify for the highest credits. Other requirements apply.

The tax credit will be available beginning with the 2010 tax year. The IRS has begun publishing general information about the tax credit, and additional guidance for tax-exempt employers will be forthcoming.

To find out if your organization might qualify, see the following IRS Web pages:

IRS Small Employer Health Care Tax Credit Announcement Page: www.irs.gov/newsroom/article/0,,id=220809,00.html

IRS FAQ's about the tax credit: www.irs.gov/newsroom/article/0,,id=220839,00.html

IRS "3 Simple Steps" Worksheet for small employers: www.irs.gov/pub/irs-utl/3_simple_steps.pdf

Also see this page from the National Council of Nonprofits*: www.councilofnonprofits.org/public-policy/federal-policy-issues/health-care-reform/small-employer-health-credit

*All Center for Non-Profits members are also members of the National Council of Nonprofits. Not a member yet? Join today to support our advocacy, legal and management assistance activities, and access cost-saving opportunities!!

This document is for informational purposes only and does not constitute legal advice or a legal opinion. For answers to specific questions concerning your situation, you should consult a knowledgeable attorney who can advise you regarding your particular circumstances.