A payroll tax credit enacted as part of health care reform is now available to assist small nonprofit and-for profit employers (those with less than 25 employees and average wages below $50,000) in providing health insurance for their employees.
Latest News
GAO report finds few employers claim small employer health care credit
A Government Accountability Office (GAO) report released May 21 found that fewer small employers in 2010 claimed the Small Employer Health Insurance Tax Credit than were eligible. The GAO report indicates that only 170,300 small employers out of an estimated 1.4 million to 4 million eligible employers claimed the credit for the 2010 tax year, at a cost of $468 million.
Guidance
The IRS has announced final guidance for claiming the small employer health care credit under section 45R of the Internal Revenue Code. Qualifying tax-exempt organizations will calculate their applicable credit using an updated Form 8941 and will claim the credit using a revised Form 990-T.
- IRS final guidance for claiming the small-employer credit (Notice 2010-82)
- IRS instructions: Form 8941
- Treasury fact sheet - small employer credit
- The small employer credit: answers to frequently asked questions
New Legislation
Sen. John Kerry (D-MA) has introduced legislation (S. 2227) to simplify and expand eligibility for the small employer credit to qualifying organizations, including nonprofits, with less than 50 full-time equivalent employees. A similar proposal was included in President Obama's FY 2013 budget proposal.
How It Works
From 2010 - 2013, all eligible small employers that contribute at least 50 percent of the total premium cost for their employees' health insurance (or 50 percent of a benchmark premium) would receive a tax credit. Eligible nonprofit employers would receive a credit of up to 25 percent of the employer contribution which they would apply to taxes they pay or withhold for their employees; employees would still receive full credit for taxes withheld from their pay. Eligible for-profit employers would receive an income tax credit for up to 35 percent of the employer contribution for employees' health care coverage.
In 2014 and beyond, all eligible nonprofit employers that purchase coverage for their employees through a state insurance exchange would receive a credit of up to 35 percent of the employer contribution for employees' coverage which would be applicable against payroll taxes they withhold or pay for their employees. Eligible for-profit employers that purchase coverage for employees through a state insurance exchange would receive an income tax credit for up to 50 percent of the employer contribution for employees' health care coverage applicable towards income taxes they owe.
What's Next?
Federal agencies are beginning the implementation process of this landmark legislation. Some of the law's provisions will take effect immediately, while others will be instituted over the next four years.
- Implementation timeline (PDF) - Key effective dates for health care reforms
- Department of Health and Human Services (HHS) guidance - Updated implementation and process resources for individuals and employers
- Department of Labor (DOL) guidance - Updated health reform regulatory information for all employers
Is Position
Independent Sector and its members worked with Congress to ensure that incentives for employers to provide health care coverage to their employees would apply to both for-profit and nonprofit employers. The Senate Finance Committee first included the provision extending the small business tax credit to nonprofit employers, and House leaders subsequently adopted the Senate provision following strong efforts by Rep. Betty McCollum (D-MN), Rep. Donna Edwards (D-MD), and 41 other representatives who joined their January 2010 letter to House leaders.
Background
Health Care Reconciliation Package
President Obama has signed the $940 billion comprehensive health care reconciliation package. The legislation (PL 111-152) incorporates adjustments to the Senate-passed legislation based largely on the proposals submitted by President Obama. It maintains proposals to create health insurance exchanges and to provide tax credits to qualifying individuals and small businesses, including nonprofits, for purchasing health insurance. The package would slightly modify the Senate-proposed excise tax on high cost insurance plans and is projected to reduce federal deficits by $138 billion over the first ten years.
Health Care Reform Legislation
The President has signed a $875 billion comprehensive health bill, the Patient Protection and Affordable Care Act (PL 111-148) with a manager’s amendment package. The final bill eliminates the government-run public insurance option in favor of multi-state insurance exchanges, increases the Medicare payroll tax for high-income filers, and expands the accessibility of tax credits to qualifying individuals and small businesses, including nonprofits, for purchasing health insurance.
Health Care Reform: Revenue Effects and Cost Estimates
- Joint JCT and CBO Revenue and Cost Estimate Tables (PDF)
- Revenue and Cost Estimates: Explanations (PDF)
IS has provided for its members (IS member password required):
- a quick analysis of health care legislation (as modified by reconciliation) (PDF)
- a side-by-side analysis of the health care bill and its amendment (PDF), and
- a comprehensive side-by-side comparison prepared by Washington Council Ernst & Young (PDF).Updated
Grandfathered Health Plans
As part of the Patient Protection and Affordable Care Act (PPACA), existing health care coverage plans that were in place prior to the enactment of the new health care law on March 23, 2010 are eligible to be "grandfathered," or exempted, from a number of new requirements provided that they meet five essential criteria to maintain grandfathered status. The Department of Health and Human Services (HHS) in conjunction with the Internal Revenue Service (IRS), and the Department of Labor (DOL) have released final rules for grandfathered health plans.Grandfathered health plans include:
- Not subject to the new health law mandate to provide first-dollar coverage for preventive care
- Must fulfill new requirement to extend dependent coverage to children under age 26
- Can exclude children who have employer-sponsored coverage through their own employer or a spouse's employer until 2014
- As long as a plan maintains its grandfathered status, it is exempt from most PPACA requirements indefinitely
Maintaining Grandfathered Plan Status:
Grandfathered plans are allowed to make routine changes to their coverage structures, which includes changing insurers for group health coverage as long as the same level of coverage is maintained. Any significant change related to any one of the following criteria will lead to an immediate and permanent loss of grandfathered status:
- Significant reduction in benefits
- Co-insurance charge increases
- Deductible increases
- Employer contribution decreases
- Change to annual limits
Independent Sector submitted comments to the IRS and HHS, urging more flexibility for employers to make changes to existing plans to take advantage of new market rates and the establishment of a waiver from the interim rule requirements for small to mid-sized nonprofits until the insurance exchanges are established in 2014.
