Small Business Health Care Tax Credit for Nonprofits

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The Council of Nonprofits and its State Association network worked hard to ensure that The Affordable Care Act and related regulations included a provision that gives small nonprofits (those with fewer than 25 employees) the opportunity to receive a refund (referred to as a “credit”) for insurance premiums the nonprofit paid to provide health insurance for its employees. 

For nonprofit employers the credit is actually a refund on quarterly payments the nonprofit has made to the IRS for income tax withholdings or Medicare withholdings from employee wages.)

  • The credit is ONLY available if the employer purchases health insurance through the Marketplace.
  • In some cases, the refund is available retroactively.
  • Sequestration in 2013 resulted in a reduction to the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers. Read more.

Learn about the Small Business Health Care Tax Credit on a You Tube video.

Frequently Asked Questions

  • Q: Which nonprofits qualify for the small business health care tax credit?
    A: Eligibility is limited only to those employers who pay at least 50 percent of their employees’ health care insurance costs, and who employ fewer than 25 full-time-equivalent (FTE) employees. Determining whether your nonprofit qualifies for the credit also requires you to calculate what your nonprofit's "average wages" are. The average wages to all employees must total $50,000 or less annually. Overtime hours and hours worked by seasonal employees (those working fewer than 120 days) are not included in the calculation, however, the hours worked by leased employees are included. Helpful explanations are included in the Instructions for Form 8941.
  • Q: How do we calculate “25 full-time equivalent” employees?
    A: To determine the number of full-time equivalent employees, divide the total straight-time hours of paid work at your organization by 2080 (40 hours for 52 weeks). Overtime hours worked are not included in the calculation. Presumably salaried workers should be counted as working 2080 hours, but this will be clarified in the future by the Secretaries of the Treasury and Labor. The hours of leased employees are included, but you don’t count relatives and dependents of fiduciaries, nor seasonal workers working fewer than 120 days (such as camp counselors).
  • Q: How do we calculate the total annual wages?
    A: Take total wages paid, and divide by the number of full-time equivalent employees. Round the total down to the nearest lowest multiple of $1,000.
  • Q: How does our nonprofit file a claim with the IRS to receive the credit/refund?
    A: First, calculate the refund amount using Form 8941. Then, include that amount on line 44f of the Form 990-T, Exempt Organization Business Income Tax Return. In order to claim the credit, your nonprofit must file the Form 990-T, even if your nonprofit doesn't ordinarily file that form.
  • Q: Can our nonprofit claim the credit retroactively?
    A: Yes. This credit has been available since 2010. If your nonprofit was/is eligible but did not apply in past years, you can still file for the credit retroactively. Be sure to read the instructions for Form 8941 for the applicable year.

One important thing to remember is that the credit is only be available to employers who purchase insurance for their staff through the Marketplace.

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