When you are in business, one of your primary goals should be to maximize any options to be profitable. One of those ways is to take advantage of tax credits as allowed by law.
This is especially true if you are a small company or a tax-exempt organization. The need to survive financially is based on certain rules, including profitability, liability, customer service, employee quality and tax incentives.
Being on top of your game in all these categories is akin to the old Ed Sullivan Show TV bit with the man who juggled a row of spinning china plates on tall sticks without breaking any of them—a true balancing act. If one of them became a little wobbly, then the juggler would run to that stick and spin it again so it would not drop.
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Often, as a business owner or executive of an organization, you should partner yourself with professionals who can help you manage your daily tasks by providing great, reliable information to help win the game of business. Here is one of those occasions relative to getting help with tax credits. According to Nellie So, attorney with the law firm Bricker & Eckler LLP, the Small Business Health Care Tax Credit helps small businesses, churches, religious organizations and other small tax-exempt organizations afford the cost of providing health care coverage for their employees.
This tax credit is designed to encourage eligible nonprofit organizations to offer health insurance coverage for the first time or to maintain the coverage they already have. The tax credit specifically targets those with low- to moderate-income employees. As noted below, the Small Business Health Care Tax Credit is available to eligible tax-exempt organizations even if they have no taxable income for the year.
For tax-exempt employers, as Ms. So reports in Lexology, to be eligible for the tax credit:
- The employer must have fewer than 25 full-time equivalent employees (FTEs) for the tax year. The number of FTEs is determined by dividing the total hours that the employer pays wages to employees during the year by 2,080.
- The average annual wages of the employees must be less than $50,000 per FTE.
- The employer must pay the premiums under a "qualifying arrangement" where the employer covers at least 50 percent of the cost of health care coverage for some of its workers based on the single rate. Church welfare benefit plans may be a qualifying arrangement for purposes of the tax credit.
For small church employers, a church's minister can be included in the church's calculation when determining eligibility for the tax credit if the minister is considered an employee – and not self-employed – for purposes of determining the employer's FTEs. Also, premiums paid by the employer for the health insurance coverage of a minister who is an employee can be taken into account in computing the credit, subject to limitations on the credit. If the minister is self-employed, he or she is not taken into account in determining an employer's FTEs or premiums paid.
To claim the Small Business Health Care Tax Credit, tax-exempt organizations should include the amount of the credit on Line 44f of Form 990-T, Exempt Organizations Business Income Tax Return. Form 990-T has been especially revised for the 2011 filing season to enable eligible tax-exempt organizations – even those that owe no tax on unrelated business income – to claim the small business health care tax credit.
The maximum credit amount allowed for a tax-exempt employer is 25 percent of the employer's premium expenses until 2013. In 2014, this amount increases to 35 percent for tax-exempt employers. The amount of the credit cannot exceed the total amount of income and Medicare tax the employer is required to withhold from employee's wages for the year and the employer share of Medicare tax on employees' wages for the year.
Make sure that you consult your personal legal counsel and tax professionals to rely on the best advice for this subject and others. If they turn out to be unreliable, then fire them and find someone who is. That's why you pay them the big bucks—to keep you out of trouble and in business.
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