I’m one of those nerds who actually enjoys reading government regulations. For me, it’s kind of like a treasure hunt, and it paid off the other day. I found an important nugget in the notices published recently regarding the Small Business Health Care Tax Credit for Small Employers (a component of the Affordable Care Act passed earlier this year), which are just now showing us exactly how the IRS will provide this credit to employers that qualify.
If you aren’t familiar with this tax credit, ministries qualify as non-profit employers. To be eligible, your ministry must:
- Have fewer than 25 full-time equivalent employees (FTE) for the taxable year (Any “minister” as defined by the IRS is not included in this 25 employee limit.)
- Have average annual wages for eligible employees of less than $50,000 per FTE
- Have a qualifying health insurance coverage plan
Eligible ministries can qualify for a tax credit of up to 25 percent of their insurance premiums, which could be a substantial amount. However, and this is the important nugget that surprised me, the credit is limited to the total of the following:
- A nonprofit’s income tax paid (which is zero for most ministries unless they are subject to unrelated business income tax)
- Medicare tax withholding
- Medicare tax liability for the year
This means that if your church employs “ministers,” you pay no Medicare tax anyway, so your potential credit is limited to premiums paid for those staff members who are non-minister employees. Bottom line: For most churches the tax credit will be much less than 25 percent.
While the credit will be less than some originally thought, including me, it’s still important for ministries to take advantage of it. Doing so amounts to good stewardship of God’s resources, especially as you try to figure out how much to budget for health care expenses in 2011.
For more information, including instructions and forms, visit this IRS website.