Exempt Organizations Advisory - IRS Provides Initial Guidance on Health Care Tax Credit

Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)

The IRS has provided initial information on its website about the health care tax credit for small employers. The Patient Protection and Affordable Care Act signed by President Obama on March 23, 2010, provides a tax credit for certain small employers, both for-profit and tax-exempt, that pay at least 50% of the premiums of their employees’ health insurance. For-profit companies can receive up to a maximum of 35% of the premium costs (50% beginning in 2014) as a general business tax credit. Tax-exempt organizations can receive up to a maximum of 25% of the premium costs (35% beginning in 2014). Because most tax-exempt organizations do not pay income taxes, this credit will be used to reduce certain payroll taxes. Eligible organizations are generally those with less than 25 full time employees with an average salary of not more than $50,000. The IRS will be providing further guidance on how exempt organizations can claim the credit. The tax credit is effective for tax years beginning in 2010.

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