Posted on November 1, 2010

As we told you in our May edition of Nonprofit Notes, many tax-exempt nonprofit organizations that provide health insurance coverage to their employees now qualify for a special IRS tax credit. The IRS has just released information on how tax-exempt organizations should claim the credit.

The health care reform legislation includes a tax credit that encourages small employers and nonprofit organizations to offer or maintain health insurance for their employees.

In general, the credit is available to small employers that have fewer than 25 full-time employees (with wages averaging less than $50,000 per employee per year) and that pay at least half the cost of health insurance coverage for their employees.

The tax credit, which is already effective, provides a maximum credit of 25 percent of premiums paid in 2010 by eligible tax-exempt employers. In 2014, this tax credit will increase to 35 percent of premiums paid by eligible tax-exempt employers.

Tax-exempt organizations that are eligible for the tax credit will receive it as a refund of payroll taxes paid. In order to claim the refundable credit, organizations should file a Form 990-T with an attached Form 8941 showing the calculation of the claimed credit.

More information about the credit and how to claim it can be found here.