Small Business Health Care Tax Credit

Small Business Health Care Tax Credit

by Cassie Bangerter, Controller

What is The Small Business Tax Credit:
As part of the Health Care Reform legislation, a tax credit of up to 25 percent of health premiums was created for small businesses as an incentive for providing insurance for their employees.  This credit became available in the tax year 2010.  In order to be eligible for the credit, your business (church/school/organization) must have no more than 25 full time equivalent (FTE) employees, average employee wages of $50,000 or less, and pay at least 50 percent of the premium for single healthcare coverage for employees. Most of the churches in the Episcopal Diocese of Northern California will qualify.


- If you are following the rules of our healthcare plan, your business meets the 50 percent qualification.  According to our insurance rules, all exempt employees or hourly employees working 20 or more hours per week must be offered medical and dental insurance, and it must be employer paid at 80 percent of the lowest cost plan (prorated between 20 and 30 hours). 
- While clergy count towards the total number of employees at an institution (must be less than 25 total FTE), their salaries are not counted when calculating the average wage.  A church with two employees, a clergyperson making $75,000 a year and a layperson making $45,000 a year would have an average salary (for the purposes of this tax credit only) of $22,500. 
- The IRS has a step by step guideline for the calculation.  To determine for sure that you qualify, use the Three Simple Steps Chart provided by the IRS. 

How to do the Calculation:
Once you determine that your church does qualify, you are ready to fill in the paperwork for your tax credit.  You will need to file an IRS Form 8941.  Make sure to read the instructions for filling out this form, which can be found here.  Form 8941 will tell you when to seek guidance.  We recommend that you seek the help of a tax professional as this calculation is fairly complicated and legalistic. 

Filing a Form 990-T:
We recommend that you seek the help of a tax professional in filling out your 990-T.  This is a very complicated and important form that requires the help of an expert.  If you have a tax professional in your congregation or with whom you already work, we suggest that you work directly with that person to complete this form. 

Tax Professionals:
If you do not already have a tax professional, the Office of the Bishop has a relationship with Gilbert and Associates, and we have reached out to them.  They are willing to work with all of our churches.  They believe that they can complete a 990-T and the Form 8941 for any individual church for a total fee of  $500 or less, subject to an initial consultation to determine credit eligibility and suitability of fee.  

We strongly recommend against filing your 990-T without the aid of a tax professional. 

The deadline for filing the 2012 Small Employer Health Care Tax Credit is May 15, 2013. 

The credit has been available since 2010. If you did not file a 990-T for 2010 and 2011, you may be eligible for partial credits. Please contact a tax professional to help with this.

The Future of the Small Business Tax Credit:

-The Small Business Tax Credit is intended to be in effect from 2010 through 2013.
-Beginning with 2011, you had to offer an equal percentage of coverage to all employees in order to qualify for the coverage.  Luckily, with the implementation of Parity in the Episcopal Diocese of Northern California, we will qualify.

-Beginning in 2014, the tax credit will only be available to employers who purchase their coverage through the health insurance exchanges.  The Episcopal Church Medical Trust is looking into the possibility of participating in the exchanges in the future. 


- Gilbert and Associates:
           - website:  Phone: 916/646.6464
             John Bircher

More resources coming soon!

Sources of information include the Episcopal Church Medical Trust and The Internal Revenue Service. 

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