Tax Credits Available to Tax-Exempt Organizations
by Eric Cohen • December 1, 2010 • Nonprofit Accounting • 0 Comments
If you are a small nonprofit organization that offers health insurance to your employees, you might qualify for the new federal health care tax credit that is being offered to employers for the first time in 2010.
The Small Business Health Care Credit:
The ground rules are as follows:
- You cannot have more than 25 full-time equivalent employees;
- The average salary for these employees cannot exceed $50,000;
- You have to have paid at least 50% of the health care coverage for your employees.
If you pass all three of these tests, then you are eligible for a federal tax credit that can be as much as 25% of the health care premiums that you paid in each of 2010, 2011, 2012, and 2013, and as much as 35% of the premiums that you pay starting in 2014.
There are other restrictions – the health care premiums on which the tax credit is based cannot exceed the average premiums in your area (the IRS has provided tables for this), nor can they exceed the sum of Federal withholding taxes, Medicare taxes withheld, and the employer matching Medicare taxes paid for the year.
The credit is claimed using Form 990-T along with the new IRS Form 8941. The Form 990-T is used even if you do not have any unrelated business taxable income. For nonprofits that do not owe any income taxes, the entire amount of the allowable credit will be paid to you. If you do owe taxes, the credit will be used to reduce the tax and any excess will be refunded. We have developed a calculator that can assist us in determining the amount of your tax credit.
New Hire Tax Credits:
Your organization may also be eligible for new hire tax credits. In 2010, if you hire somebody who had been unemployed into a new position or to fill a vacancy, you may be eligible for a reduction of your matching share of their Social Security taxes. This is claimed on your quarterly federal payroll tax return. There is also an additional “hire retention” credit of $1,000 available for each such new employee who stays with you for at least one year. There are many details surrounding these two federal programs, so please do not hesitate to call us to see if they might apply to your organization. If you are using a payroll service to process your payroll, they will need to be informed of eligible new hires so that 2010 payroll tax returns can be prepared properly (and amended if warranted).
Similarly, Maryland offers a new hire credit to Maryland employers who have hired unemployed Maryland residents during 2010. The restrictions on this program are somewhat more stringent than they are for the federal program, so check with us to see if your organization qualifies and to assist you in the application process if it does. There are no parallel credits in the District of Columbia or Virginia at this time.
About Eric Cohen
Eric Cohen, CPA is the President and Founder of E. Cohen and Company CPAs, a full-service CPA firm serving nonprofit organizations, government contractors, professional service companies and other industries with audit, tax and business advisory services for over 20 years. The firm was commended as a SmartCPA Reader's Choice by SmartCEO magazine and a Top 10 “Best Accounting Firm to Work For” by AccountingToday magazine. For more information, visit www.ecohencpas.com or call 301-917-6200.