Can your church get a $2,500.00 refund for providing health insurance?
By Raul Rivera
One of the goals of the health care act is to help small employers afford the cost of providing health insurance to their employees.
The health care act gives a refundable tax credit of 25% of the cost of health care insurance that the church pays for its employees. In order for the church to qualify for the tax credit, it has to meet three requirements, as listed below.
- The church has to have less than 25 employees.
- The average annual salary of the employees has to be less than $50,000.00.
- The premiums that the church pays have to be under a qualifying arrangement. This is a group insurance plan in which the church pays at least 50% of the insurance premium.
What if the pastor's salary is more than $50,000.00 a year?
Many churches have only one or maybe two employees. A common scenario is where one employee is the minister and the other is the minister's spouse, or perhaps a secretary. One great provision of the law is that the minister's salary is not taken into account in computing the average wages of the employees but his salary still counts as an employee. Let us take a look at one example.
Church ABC has one employee. The minister makes $54,000.00 per year. When computing the average annual salary of the employees, the minister's income is excluded. So, for the purposes of the church getting a 25% refund of any insurance premiums it pays on his behalf, the church has 1 employee and the average annual income is below $50,000.00. The church qualifies for the tax credit.
How to get the tax credit
This tax credit can have a very good impact on the church's budget. A church with 10 employees can get a tax credit refund of $17,500.00 each year, while a church with only one employee can get a refund of $2,500.00 or more. "So, how does my church get it?" you may be asking. Let me tell you.
To get the credit the church will have to prepare at least two tax forms, as listed below.
- The church will have to prepare form 8941 to calculate how much of a tax credit they will receive.
- The church will have to prepare form 990T and enter the grand total of the credit on line 44f of form 990T. Form 990T is due May 15th. If you do not think you will be able to file on time, please file form 8868 and send it to the IRS on or before May 16th, 2011. It only takes a few minutes to apply for a three-month extension. You can download form 8868 at http://www.irs.gov/pub/irs-pdf/f8868.pdf