Qualifying Churches: Don’t Miss your Chance for Found Money…ACT NOW!!!
Information on Applying for Federal Credit for Small Employer Health Insurance Premiums - DUE MAY 15TH for those with a fiscal year ending December 31st (otherwise due 4.5 months after the end of church’s fiscal year).
As an encouragement, I wanted to let everyone know that five of the churches that filed for this credit last year obtained unexpected resources totaling $14,568 for an average of $2,914 for their local church, a higher average than the previous year.
As we explained in a notice last year, part of the Patient Protection and Affordable Care Act signed into law by President Obama in March 2010, small employers (including churches) may qualify for a refund of a portion of the health insurance premiums they have paid. No matter when your fiscal year ends, the tax credit is for premiums paid between January and December 2013.
A credit of 25% of premium paid in 2013 (capped by the amount of payroll taxes withheld or paid) is available to local churches if claimed by the deadline of May 15, 2014. 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 FTE can claim the full credit; there is a partial credit up to salaries of $50,000 per FTE.
On August 23, 2013, the Internal Revenue Service (IRS) released a proposed rule that includes changes that significantly impact how the Tax Credit will work for churches and other employers within The United Methodist Church (UMC). Under the new rule, local churches and other UMC employers will be eligible for the Tax Credit for coverage beginning on or after January 1, 2014, only if coverage is purchased through the ACA’s Health Insurance Marketplaces, namely through the Small Business Health Options Program (SHOP) Marketplace in the employers’ respective states. You can read more about the SHOP here and at www.healthcare.gov.
It’s Not too Late to File for Past Years!! According to GBOPHB, employers that are eligible to claim the Tax Credit but were unaware of the Tax Credit and therefore missed filing for it in past years can still file claims for prior years. According to some local churches in the UMC and other denominations, the IRS has accepted late returns (Form 990-T for tax-exempt employers accompanied by Form 8941for tax years 2010, 2011 and 2012) when an explanation of late filing is attached to the return. The IRS has not stated when it will stop accepting Tax Credit applications (“returns”) for previous years. However, if your church wishes to seek the Tax Credit, the sooner your church files the return, the more likely it is to be accepted.
Churches are required to file two forms, a FORM 8941 “Credit for small employer health insurance premiums” and a FORM 990-T “Exempt Organization Business Income Tax Return”. You do not need to complete a FORM 990; a tax report required of all non-profits that are not churches.
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 employee, regardless of that employee’s enrollment in the health insurance program. Namely, 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). If an employee (especially clergy who typically pay estimated income taxes) is willing to increase the withholding for Federal Income taxes, then the local church has a larger basis from which to claim the credit.
If you think your church might be eligible to apply for this credit, download IRS Form 8941 and instructions
To get Form 990-T, go to Form 990-T and its instructions
For more information, see The General Board of Pensions and Health Benefits website. Go to the Local Church link at the top of the page. There you will find several articles, including: Small Business Health Care Tax Credit Provisions 2011–2013 – the denomination’s official directions (please note – some of their specific directions are outdated).
The credit is applied for by filing IRS Forms 8941 and 990-T with the IRS by May 15, 2014. The amount of the credit is calculated on Form 8941 and then reported on Form 990-T. Form 990-T and its instructions may look intimidating, but only the heading, Line 44f, and a few total lines need to be filled out on this form, in order to receive the health care credit.
I’ve enclosed directions for completing the two forms for a typical local church in our conference. Churches with complex relationships with other organizations should not use these directions and should turn to the resources available through the IRS.
Last year, several local churches were asked to verify their information before the tax credit was mailed. As a discouragement to fraud, the IRS is following-up with several organizations that did not previously file a Form 990. Save a copy of what you send in to claim the credit – because the follow-up form mostly asks for the same information.
If the IRS contacts you and requests a Form 4564, you have been selected for the follow-up and the form can be found at http://www.irs.gov/pub/irs-utl/form4564.pdf. Please contact me at for instructions. Don’t be discouraged by this request. It is only a formality.
If you do apply for this credit, please let me know how the process went. If you receive a credit this year, please let me know how much your credit amount is, I would appreciate it and will use the aggregate number from all churches to encourage other churches to file, as well.
Grace and peace be yours,
William Burnside, Treasurer - Director of Administrative Services
Directions for the typical New England Conference Church
What follows are simplified directions for the typical New England Conference church to complete the Form 8941 and Form 990-T and claim a reimbursement from the federal government for payment of health insurance for your pastor and/or lay people. Churches of complexity or churches with financial links to related non-profits may wish to consult with the directions published by the IRS. “Identifying Number” is your EIN.
Line 1a. Report here all employees of the church, whether part-time or full-time and whether offered health insurance or not. Include clergy in the count of employees. For this line, even a part-time person is counted as a whole number. Do not include contracted employees (like a janitor working for a service), nor persons working fewer than 120 days.
Line 1b. This is your EIN number.
Line 2. Report the number of Full Time Equivalents (FTEs) employed by the church, both those with health insurance and those without.
ü DO include clergy members in this count.
ü A person working 20 hours per week is ½ an FTE.
ü A person working half the year is ½ an FTE
ü Do not include contracted self-employed (those who receive a 1099 and not a W2)
ü Do not include leased employees (i.e. janitor working for another company)
ü Do not include seasonal workers of fewer than 120 days.
ü No employee, regardless of the amount of overtime, can be counted for more than 1.
Line 3. First, add together the amount of salary paid in 2013.
ü DO NOT include clergy salary, housing, or allowances.
ü Do NOT include seasonal employees working less than 120 days.
ü Do NOT include contracted, leased, or self-employed persons.
ü Most probably the total amount will equal the amount reported on Line 5c of Form 941 Taxable Medicare Wages for the year.
Second, divide the total salaries paid by the number of FTEs you wrote on Line 2. You must use the FTE number as the denominator. It seems odd, but it is correct to include clergy FTEs, but not clergy salaries.
Line 4. The amount actually paid by the church for health insurance premiums starting 1/1/2013.
Line 5. For most churches with only one clergy member in the plan, write in the number for your state found on the State Average Premium Limitations for Small Group Markets chart by the IRS, which we have provided below. For churches with multiple persons on the conference health plan and for whom the church pays 100% of the premium, multiply the number of persons with single coverage times $______(the number for your state) and add to it the number of persons with couple or family coverage times $______(the number for your state).
State Single Coverage Rate Couple/Family Coverage Rate
CT 6,307 16,011
ME 5,590 13,064
MA 6,323 16,502
NH 6,153 15,367
RI 6,345 15,363
VT 5,800 13,409
Line 6. Enter the smaller number between Line 4 or Line 5.
Line 7. Use 25% and multiply by the smaller of Line 6.
Line 8. If Line 2 is 10 or less write the same number as Line 7. Go to Line 9.
If the number of FTEs is above 10, use the following formula:
a. FTEs written on Line 2 ______
b. Subtract 10 from Line A ______
c. Divide Line B by 15 ______
d. Multiply Line C by Line 7 ______
e. Subtract Line D from Line 7 ______write this amount on Line 8
Line 9. If Line 3 is below $25,000, write the same number as Line 8 and go to Line 10.
If Line 3 is above $25,000 use the following formula:
a. Average Salary on Line 3 ______
b. Subtract 25,000 from Line A ______
c. Divide Line B by 25,000 ______round to at least 3 decimal places
d. Multiply Line C by Line 7 ______
e. Subtract Line D from Line 8 ______write this amount in Line 9
Line 10. For the typical church this is 0.
Line 11. Write the same number as written on Line 4.
Line 12. Write the smaller of Lines 9 or Line 11.
Line 13 is the number of persons enrolled in the health plan. Write 1 if it is only the pastor in the health plan.
Line 14 is the number of FTEs on the health plan. Write 1 if it is only the pastor in the health plan.
Line 15. For the typical local church this answer is $0.
Line 16. Probably the same answer of Line 12.
Line 17 and Line 18. Skip these lines.
Line 19. Not all payroll taxes should be reported here. Not all payroll taxes qualify for the credit. Only three types of payroll taxes qualify:
1. Medicare tax (not social security taxes) withheld from paychecks for ALL employees, whether that particular employee has health insurance or not.
2. Medicare tax (not Social Security taxes) paid by the local church as the employer share for ALL employees, whether enrolled in the health plan or not.
3. Federal Income tax withheld from paychecks from ALL employees.
Report what was paid and withheld by the local church for everyone, not just those who have health insurance. It may help to consult the Form 941s you’ve completed during 2013 : Income tax withheld is on Line 3, Medicare taxes, you can use Line 5c (column 2) for the year (this is the October 2012 Form 941).
Line 20. Write the smaller of Lines 16 and line 19. This is the amount to write on Form 990-T Line 44f.
DIRECTIONS FOR FORM 990-T
For a typical New England Conference local church
Non-profits are required to annually file Form 990 with the IRS. Churches are exempt from this requirement. Form 990-T is an amendment to Form 990 and rarely used. The only reason to use the form is to claim the rebate of health insurance premium payments made available through the new health care reform law. It’s a complicated form, but is very simple for our use.
Write the name and the address of the church at the top.
A. Skip this
B. Check the box next to “501”. In the spaces next to that, write ( C ) and ( 3 ).
C. I wouldn’t sweat this one too much. Write the value of your church owned real estate plus the value of any financial accounts. It has no bearing on anything, but sometimes a blank draws the IRS’s attention.
D. Use the local church EIN, “employer identification number”. It’s the same number you use to file payroll taxes.
E. Skip this.
F. The group ruling number for the entire United Methodist denomination is #2573. This is the only time you will ever use this number; even in the future. Typically, when asked for your tax exempt number you should use your EIN (above).
G. Check the box for a 501(c)(3) corporation
H. Leave it blank
I. Check “No”
J. Give the name and phone number of the person completing the form.
Part 1 Skip this entire part. If the church had “rental income” from another non-profit program using the building, do NOT report that on Line 6. Churches are not obligated to report. But DO write $0 on Line 13, Column (C) Net.
Part 2 Skip this entire part.
Part 3 Skip this entire part.
Part 4 Skip lines 40, 41, 42, and 43
For Line 44, go to line f. Write the amount from Form 8941, Line 20.
Write this same number, the total for Line 44f on:
Line 45
Line 48
Line 49. Be sure to put the number all the way to the right, after the word
“Refunded.”
Part 5 Check “No” for questions 1 and 2. Skip Line 3.
Schedule A – Skip this entire part.
Sign it. (In addition, you should write “Request for 45R Credit Only” across the top of the Form 990-T.) Save a copy. Add the Form 8941 you completed and mail the forms to:
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0027