If your nonprofit has fewer than 25 full-time equivalent employees, then it might be eligible for a perk that has been largely overlooked but could yield a cash refund from the IRS.
For purposes of the Affordable Care Act, any private employer (both for-profit and nonprofit) with fewer than 25 employees is considered to be a "small business." The Small Business Health Care Tax Credit provision gives small employers—both for-profits and nonprofits—a credit for providing health insurance for their employees. For nonprofits, the "credit" is a refund on a portion of the expenses that the nonprofit pays for health insurance coverage for its employees.
In order to be eligible, the nonprofit must pay at least 50 percent of the premium for its employees' health insurance, and average annual wages for all employees must be less than $50,000 per FTE. A bit of calculating is required to determine eligibility and what the refund amount will be—but depending on the number of employees and their annual wages, receiving the refund could be a nice cash boost to advance your mission.
Because the refund is named a "small business ... tax credit"—which makes it appear to apply only to "small businesses"—many charitable nonprofits (and even their accountants and tax preparers) didn't realize that Congress created a special process so that small tax-exempt organizations could receive incentives to provide health insurance coverage for their employees comparable to those available for small for-profit employers. The refund is an example of how advocacy efforts by the charitable nonprofit community helped create a solution that would not have been implemented had tax-exempt organizations not raised their voices.
This refund has been available since 2010, but when the National Council of Nonprofits hosted a national webinar with guest presenters from the IRS on this topic in July, it was apparent that many eligible nonprofits didn't know about the refund. The good news is that it's easy to apply for, and even though the refund has been available since 2010, your nonprofit can file a claim for the refund retroactively—WITHOUT having to amend any Form 990s filed earlier. The bad news is that the tax credit is a bit complicated to calculate, and sequestration has unfortunately resulted in a reduction to the refundable portion of the Small Business Health Care Tax Credit.
Eligibility checklist: To help your nonprofit determine whether it is eligible, how much the refund will amount to, and how to apply for the Small Business Tax Credit, the IRS has posted very helpful guidance on its Web site. There are three eligibility requirements: Does your nonprofit
- Pay at least 50% of the premiums for health insurance coverage for its employees?
- Pay average wages for all employees of less than $50,000 annually per employee?
- Employ fewer than 25 full-time equivalent staff members?
The National Council of Nonprofits has posted guidance about the Small Business Health Care Tax Credit on its Web site. There's also information about how key provisionsof the Affordable Care Act affect nonprofits, including information on a special notice that most charitable nonprofits must provide to their employees by October 1.
If you have tax questions about the Small Business Health Care Tax Credit, or need assistance completing the necessary forms, call the IRS Business Help Line at 1-800-829-4933 and request assistance with the "Small Business Health Care Tax Credit." Explain that your "business" is a tax-exempt nonprofit.
Jennifer Chandler, National Council of Nonprofits
© 2013, National Council of Nonprofits
Jennifer Chandler is vice president and director of Network Support & Knowledge Sharing at the National Council of Nonprofits. Jennifer is an attorney by training, and a cheerleader for charitable nonprofits by choice. The Council of Nonprofits is a trusted resource and advocate for America's charitable nonprofits. Find out more and stay up to date with the latest information for nonprofits at www.councilofnonprofits.org.