A Tax Credit for Churches?
Potentially thousands of dollars available from health care provision.

Editor's Note (September 29, 2011):A church business administrator in Colorado shared the following update regarding his church's application for this credit: "We submitted form 990-T claiming the credit (approximately $7,100) in late April. We received a request for more information from the IRS late August. Yesterday, the IRS told me that they are still working through a massive amount of applications, and it could take up to 60 days from now to receive our refund, if we are deemed qualified. They said they have 5 agents working on the applications, which is taking them longer than expected. So for those of you still waiting like us, it may be awhile before you see your check. The IRS contact said you are welcome to call 877.301.5153, select option #2, to check on your status (the IRS contact was courteous and professional)."

Editor's Note (August 12, 2011):The 11th Circuit ruled today that a key part of Obama's healthcare reform is unconstitutional. Watch for future updates here, onChurchLawandTax.com, and inChurch Law & Tax Report to learn what this means for churches.

Is there really a "tax credit" available to churches based on last year's health care reform? For those offering health care to employees, the answer is quite possibly yes. The deadline for the first opportunity to take advantage is approaching fast, though.

Some churches say they have received more than $10,000 from the provision, so it's worth investigating what it involves. Richard Hammar provides further information in this short video update below.

For complete coverage, check out the May edition of Church Finance Today and a live webinar on May 4 with Rich on key health care reform updates.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations

Comments

Displaying 1–10 of 33 comments

Stacy

August 14, 2011  10:23pm

Last Friday I viewed a video posted about 7/20/2011 by the Diocese of North Carolina of an interview with +Michael and the Diocese's CPA which claimed that the IRS had recently decided to extend the deadline for churches to request the 45R health care credit. I cannot find any corroborating evidence for this IRS extension. I would like to file for the credit for several churches I work with, but don't want to put them at risk in any way. If I file a 990T without having earlier requested an extension with form 8868, will those churches be penalized or otherwise put at risk? Thank you.

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Matt

August 12, 2011  1:09pm

Breaking news (August, 12, 2011): The 11th Circuit has ruled a key part of Obama's healthcare reform is unconstitutional. Watch for future updates here, on ChurchLawandTax.com, and in Church Law & Tax Report to learn what this means for churches.

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Naomi Mungin

August 11, 2011  7:36pm

I have listened to your video and read each comment, however I still do not understand. The pastor makes 79000 per year and there are three part time employees with combined wages of 24000 per year. Health insurance is paid for the pastor only. Will we qualify for the credit since we do not have to add the pastor salary to the total wages and we do not pay insurance on the other three employees? Thank you for your help

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Matt

July 25, 2011  5:17pm

Jan, Thanks for your comment. Based on Rich's deeper analysis of this credit in the Feature Report, A Valuable Tax Credit for Churches (http://store.churchlawtodaystore.com/vataxcrforch.html), it appears the portion of the premiums for the coverage provided by churches to employees are includible. He states: "For purposes of the credit, including the requirement to make a uniform contribution of no less than 50 percent of the premium, any premium paid pursuant to a salary reduction arrangement under a section 125 cafeteria plan is not treated as paid by the employer. Example: A church pays 80 percent of the premiums for employees' health insurance, with employees paying the other 20 percent pursuant to a salary reduction arrangement under a cafeteria plan. Only the 80 percent premium amount paid by the church counts in calculating the credit. "In addition, the amount of an employer's premium payments that counts for purposes of the credit is capped by the premium payments the employer would have made under the same arrangement if the average premium for the small group market (set by the Department of Health and Human Services) in the state in which the employer offers coverage were substituted for the actual premium." I pray this helps. –This is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Best, Matt

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Matt

July 25, 2011  4:59pm

Jane–Thanks for your comment. To date, your situation is the first we've heard of, in terms of the IRS requiring additional informational support for the Form 8941. Best, Matt

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Jane Breed

July 19, 2011  6:26pm

We prepared a form 990-T and Form 8941 for one of our church clients who is due a refund of about $9000. They received a notice from the IRS requesting 15 different items of information to support the Form 8941. Has anyone else received such a request and responded to it? What were the results of this desk-audit?

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Jan Carr

July 14, 2011  12:12pm

I have a few questions regarding Section 125 cafeteria plans and whether they are "qualifying arrangements" as defined by the Small Employer HealthCare Tax Credit. Is the employer portion of health insurance premiums paid (i.e. not the amount the employee pays / contributes) under a Section 125 cafeteria plan includible as health insurance costs when calculating the Small Employer Healthcare Tax Credit? If includible, are they only includible if the employer paid portion represents 50% or more of the self-only health insurance premium (i.e even if the employee has selected family coverage)? If includible, for 2011 and subsequent must the employer paid portion of healthcare insurance premiums paid for employees under a Section 125 cafeteria plan be a uniform percentage, such percentage being no less than 50%, of the self-only health insurance premium for each respective employee? For example, if the employer paid portion represented 80% of the self-only health insurance premium for employee A and 60% for employee B, would the premiums paid on behalf of both employees not be includible due to the employer's not paying a uniform percentage? Finally, if under the previous example the premiums would be includible, if the employer paid portion for employee B were only 40% of the self-only health insurance premium, would this invalidate the entire plan as a qualifying arrangement because the employer contribution for employee B was less than 50%? Thank you very much.

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Matt

May 13, 2011  5:01pm

Kerrie–Thanks for your question. Below is an answer from Rich Hammar: The question is whether a church's reimbursement of the health insurance premiums incurred by an employee under an individual policy can be included in determining the church's eligibility for the small employer health insurance tax credit. The instructions to Form 8941 state: "For credit purposes, health insurance coverage means benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance provider. A health insurance provider is either an insurance company or another entity licensed under state law to provide health insurance coverage." The confusion arises because of the requirement (in section 45R) that the health insurance paid by the employer be pursuant to a "qualifying arrangement." A qualifying arrangement is defined as "an arrangement under which the employer pays premiums for each employee enrolled in health insurance coverage offered by the employer." In the arrangement you have described, the church is paying health insurance premiums on an employee's individual policy rather than on "health insurance coverage offered by the employer." As a result, it would not appear that this would be a qualifying arrangement. So, unless and until the IRS provides additional clarification, or a church receives advice from a tax professional indicating that reimbursements of an employee's premiums paid on an individual policy can count in computing the credit, I would not include the church's reimbursement of such premiums in computing the credit. Rich Hammar

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Kerrie Levenduski

May 12, 2011  9:41pm

As a church with 2 FTE and the required average salaries, we qualify for this credit. We don't have a cafeteria plan, but we don't pay the premium to the insurance company, we pay the employee a reimbursement for the premium. Does that make a difference? Do we still qualify for the the tax credit?

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Matt

April 27, 2011  4:10pm

Friends, Rich won't be able to continue answering questions, due to the high volume of submissions we continue to receive. However, many of the questions we've received are answered in his May 2011 Church Finance Today, which we've now made available for special download for only $4.95. We hope this helps: http://bit.ly/jz5sbs Best, Matt

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