Health Care Reform Credit for Small Employers (including churches)

Local Churches,

As you may be aware, the Health Care Reform Act permits small employers, including Local United Methodist Churches to receive a credit for payment of health insurance premiums for employees and clergy members. The IRS has issued directions and clarifications on how a Local Church may request a reimbursement check from the government for health insurance premium expenses. A credit of 25% of premium paid in 2012 subject to applicable limitations (capped by the amount of Federal Income and Medicare taxes withheld and paid) is available to Local Churches if claimed by the deadline of May 15, 2013. You will be able to apply for the credit for plan years 2012 and 2013.

Churches with 10 or fewer employees can claim the full credit; those between 11-25 employees can claim a reduced amount of credit. Churches with an average wage of $25,000 per full time employee can claim the full credit; there is a partial credit for salaries up to $50,000 per full time employee.

You are required to file two forms: 1.) a FORM 8941 “Credit for Small Employer Health Insurance Premiums” and 2.) a FORM 990-T “Exempt Organization Business Income Tax Return.” The credit is taken against Medicare taxes paid by the Local Church and Medicare taxes and Federal Income taxes withheld from paychecks for any Local Church Lay employee and Clergy if voluntary Federal Income Tax withholding is chosen, regardless of that employee’s enrollment in the Health Insurance Program. Even though you do not withhold payroll taxes for your pastor you are able to claim the credit against payroll tax obligations of other employees (even those not in the health plan).

The IRS has issued clarification and directions about how local churches may request a reimbursement from the government for these expenses.

IRS Website (www.irs.gov)
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General Board of Pensions and Health Benefits website: (www.gbophb.org)

While The Eastern PA Board of Pension and Health Benefits has made every effort to ensure the information in this letter is correct and accurate it is not intended to serve as legal advice. Readers should seek assistance from a tax professional for questions regarding their specific circumstances.