Small nonprofits getting cut in healthcare tax credit

Due to the federal budget impasse, certain small non-profits nationwide will see an 8.7 percent cut in a federal tax credit they have received since 2010 for providing health care insurance for their employees.

Under the health care reform law, small businesses — both for-profit and nonprofit — that employ no more than 25 people can receive money back from the federal government if they pay at least half of their employees’ health care insurance premiums, and if those employees earn low-to-moderate incomes.

For-profit companies meeting those conditions get a federal tax break, while qualifying nonprofits, which don’t pay taxes, simply get a direct payment. From 2010 through this year, for-profits could get back up to 35 percent annually of what they paid in premiums, and nonprofits up to 25 percent.

For 2014, the credit was supposed to increase to 50 percent for the for-profits and 35 percent for non-profits, also known as tax-exempt employers.

Overall, the credit was an attempt to motivate small employers to either start offering or continue offering health insurance to their employees.

But automatic federal budget cuts known as sequestration that took effect March 1 — after Congress couldn’t agree on any other plan — trimmed those credits for nonprofits, among many other cuts to various programs. Instead of nonprofits getting back 25 percent of their premium payments, they’re receiving up to 16.3 percent, after the reduction is applied.

For-profit small employers still get the full credit.

Marc Herstand, executive director of the Madison chapter of the National Association of Social Workers, said he was disturbed by the smaller government check and letter of explanation he received.

He said it made little sense to find savings that way.

“We’re one of the thousands of small employers in the state who are doing the right thing and providing health insurance to our employees, which people from both parties support,” he said. “And yet, we’re being in a sense taxed for doing it. It’s not a big amount, but it’s kind of outrageous, the principle of it.”

Rick Krueger, a CPA with professional services firm CliftonLarsonAllen in Middleton, said he didn’t believe the health care tax credit for small employers was well known, let alone the cut reducing it for nonprofits.

But businesses that could be affected should find out and prepare for it, said Krueger, who manages employee benefit plans for clients.

“It’s something to take up in a budget meeting and figure out where to come up with the (lost) money,” he said.

The credit reduction is in effect for at least this federal fiscal year, which ends Sept. 30.

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