Health Insurance Credit US Churches


Last May I blogged about the health insurance credit available for small tax exempt organizations under the Patient Protection and Affordable Care Act.  This credit is designed to encourage these organizations to offer health insurance coverage to their employees for the first time or to maintain coverage they already offer. US churches may qualify for this "health insurance credit" for 2011 also. The credit is up to 25% of the cost of qualifying health insurance premiums.  This is defined as the premiums paid directly or reimbursed to church employees.  You may qualify if your church has: 

1) 25 or less full-time equivalent employees (ministers may or may not be considered an employee--check the instructions for the 8941, p. 2)

2) average annual wages of $50,000 or less (for credit purposes, a minister is an employee or self-employed as  determined under the common law test). 

The credit is limited to non-voluntary income taxes withheld (most ministers' are self-employed so their withholding is voluntary and therefore they are not eligible), and the employee and church portion of the FICA Medicare taxes. Check out the IRS site for additional information and to check if your church may be eligible.  Form 8941 is the worksheet for determining eligibility and you would claim the credit on Form 990-T, line 44f.

Do you think you don't qualify for this because you don't pay taxes?  NO. You may get a credit of income taxes and medicare taxes.  For example, if your church had 6 full-time equivalent staff (including the minister), total wages of $240,000 ($40,000 average), withheld qualifying taxes totaling $9,000, and paid health insurance premiums for 4 of the staff members totaling $25,000, you could receive a credit toward your payroll taxes of $2,500.   The credit is graduated from 25% if the average wage is $25,000 to 0% if the average wage is $50,000. Check out the instructions for Form 8941 for more information on how this is calculated.

It will take some work to tackle all the details but for $2,500 in our example, it seems like this is something some churches will want to pursue if you haven't done so already.  Finally, this credit is available for the next few years and the credit increases to 35% in 2014. 

Let me know if your church has checked this out and applied for the credit or if you do so by the 2011 filing deadline of May 15. Check out last year's blog for comments from other churches regarding the credit.

The above is basic information and is not considered tax advice.  I hope this information assists your church in at least looking at this possible benefit for your ministry. 

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Let's Discuss…

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Thanks for sharing this information! I'm a CPA, and I'm trying to find out some details about this credit. I called the IRS today, and they weren't much help.

My first question is if churches that haven't ever filed to be "official" 501(c)3s can qualify. The instructions for the 8941 state that only non-profits covered by section 501(c) can qualify (other non-profits don't qualify). I know all churches are treated by the IRS as though they have 501(c)3 status (contributions to them are deductible, etc) but, unless a church files a Form 1023, they aren't technically a 501(c)3, so they aren't covered by 501(c) (at least that's my thinking). Have any churches that haven't filed a Form 1023 sucessfully applied for this credit? The person I talked to at the IRS today said that since churches aren't techically covered by 501(c), then they can claim the 35% credit instead of the 25% credit that applies to non-profits, but I am SURE this is not true.

My other question is if a church that just now finds out about this can still file a 990-T for 2010. A different IRS person I talked to today said that since the church was not required to file the 990-T, there is no deadline for filing it, and it can still file for the credit for 2010. That answer made some sense to me. If a non-profit had filed a 990, but had not filed a 990-T and claimed the credit for 2010, it could just file an amended 990 for 2010, add on the 990-T and 8941, and still get the credit. So, a church shouldn't be penalized just because it was not required to file the 990 in the first place.

Community Builder

Churches in the Christian Reformed Church denomination typically utilize the 501(c)3 status of the denomination.

Discussing with the IRS the possibility of still filing a 990-T for 2010 sounds like the best way to resolve your question about whether you may still file. Let us know!

Community Builder

It looks like the 990-T for 2011 hasn't been posted yet by the IRS.  Last year it was posted in early March so mark your calendar for March to apply for the health insurance credit.

Our experience at Peace Community CRC has been that since I am considered "self-employed" the church withheld no taxes for me.  No taxes withheld=nothing to get a credit from. Hence, the IRS has rejected our claim.

Also, like many small churches, all of our staff are considered contractors because we deduct no taxes for and file 1099s for them.

I guess it was worth a try, but it was somewhat of a waste of time.

Community Builder

The credit is limited to non-voluntary taxes withheld so churches with only a minister who has a self-employed status would not be eligible.  According to IRS regulations, most "staff"  do not qualify as contractors and should be receiving W-2's.  Therefore, staff taxes (FICA and Medicare--employee and employer) withheld would be eligible for the credit and the staff AND minister's health insurance premiums could then be counted in the calculations.  This credit will be most helpful for churches that have one or more full-time staff (in addition to the self-employed minister) receiving health insurance benefits. This is my understanding of the available credit.

Our church pays 100% family health coverage for pastors but a lower percentage for lay employees.  I know that this was ok for the 2010 tax credit but will we still qualify in 2011?


Community Builder

You will need to work through the Form 8941 and check if you qualify again this year. The IRS rules didn't change this year so if everything else was similar, you will likely qualify again this year.

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