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A Valuable Tax Credit for Churches
How Small Church Staffs May Benefit from a Health Care Reform Provision

One of the main objectives of President Obama's health care reform law (the "Affordable Care Act") is universal health coverage. The Act contains several provisions to achieve this goal. One of them is a new tax credit that will help small businesses and small tax-exempt organizations (including churches) afford the cost of providing health insurance for their employees. The credit is up to 25 percent of the cost of health insurance premiums paid by a qualifying employer for its employees.

Many church leaders are confused by this provision. After all, how will a tax credit (a reduction in taxes) benefit churches that pay no taxes? In fact, the credit does benefit tax-exempt entities because the law makes it "refundable," meaning that it is payable in cash.

For churches whose fiscal year ends on December 31, the deadline to apply for the 2010 tax year already passed. Those using a different fiscal year may still have time to apply. It is important for church leaders to become familiar with this credit, since it will help many churches afford the cost of health care coverage for their employees, possibly for up to six tax years.

The new credit is specifically targeted for those employers with low- and moderate-income workers, and is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

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