Tax Incentive For The Tax Exempt

Is your credit union eligible to take advantage of a special tax incentive?




Credit unions all over the country are cashing in on the Small Business Health Care Tax Credit – a special incentive that refunds a portion of company-covered employee healthcare costs.

The Small Business Health Care Tax Credit is part of the Affordable Care Act, which became law this past year. The credit is designed to help employers with low to moderate income workers afford healthcare coverage for their employees. Credit unions are eligible to receive this incentive regardless of whether they have previously filed annual income tax returns. For credit unions, the credit is generally 25% of premiums paid, is also limited to the amount of certain payroll taxes paid and claimed as a refundable credit on Form 990-T. Credit unions are also required to file a completed Form 8941 with Form 990-T.

Form 990-T is due May 15 following the end of the calendar year. The credit was first available in the tax year ending December 31, 2010.  Late filing is permitted for credit unions because the late filing penalty is based on the amount of tax owed.  So if the credit union does not normally file income tax returns it can still file late without being penalized.

To find out if your credit union is eligible to receive the Small Business Health Care Tax Credit, answer three simple questions:

  • Does your credit union have less than 25 full-time equivalent employees? You may be able to meet this requirement even if you had 25 or more employees because it is based on the actual hours worked.
  • Is the average annual employee salary less than $50,000?
  • Does your credit union pay at least 50% of health insurance premiums for employees under a qualifying arrangement? A qualifying arrangement is generally an arrangement that requires the credit union to pay a uniform percentage of the premium cost for each enrolled employees health insurance.

There is a reduction of the refundable credit once you exceed 10 full-time equivalent employees and/or $25,000 in average wages. Your credit is also reduced if the employer-paid health insurance premiums exceed the average health insurance premiums for small group markets in your state. The credit cannot exceed the sum of the annual federal income taxes withheld, the Medicare taxes withheld from the employee’s wages and the Medicare wages paid by the employer on behalf of the employee.

Refund amounts vary depending on these factors, but the cost of filing for the credit is minimal, so the benefit outweighs the expense. Recent examples of refunds issued include:

  • a credit union with six employees receiving a $4,057 refund
  • a credit union with 15 employees receiving a $3,881 refund
  • a credit union with 11 employees receiving a $10,209 refund
  • a credit union with 23 employees receiving a $5,846 refund
  • a credit union with 11 employees receiving a $3,670 refund

To find out more about this incentive offered to credit unions, visit or contact Stephen Griffin at Stephen Griffin, a certified public accountant with more than 16 years experience working with credit unions to maximize their revenue, offers a perspective on how your company may be able to take advantage of this offer.