Tax Credit Available to Qualifying Churches

CHICAGO, IL (February 10, 2012) – A tax credit that returned more than $500,000 to Evangelical Covenant Church congregations last year is available again this year for qualifying congregations.

“The tax credit is available to a church if they have federal income taxes withheld on employees and also double the amount of Medicare taxes on the W-3,” says Controller Elliott Johnson. “If there are no taxes on these lines, no credit is available. You can adjust your withholding for both pastors and others for 2011 and later to help qualify for 2011-2013.”

Qualifying churches must also have fewer than 25 full-time equivalent employees and average employee FICA wages that total less than $50,000.

Pastors must be included in the count of employees even though they are considered self-employed, says Johnson.

“The total wages that you use comes off the W-3 and line 3, where Social Security wages are included,” Johnsons says. “However, this excludes all of the pastors’ compensations.”

“It is possible for a church with only pastors receiving compensation to have an average wage of $0,” Johnson says. More information is on forms 8941 and 990t.

Johnson explains, “On 990t write ‘For Health Care Tax Credit Only.’ Fill out line A to J, put a $0 on line 13 and then skip to 44f to put the amount of credit from 8941.”

The credit can be claimed through 2013 and for any two years after that, according to Internal Revenue Service guidelines. For tax years to 2013, the maximum credit is 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 35 percent of premiums paid by eligible tax-exempt organizations.

Churches needed to submit the appropriate tax forms by May 15 to get the credit for this year.

Evangelical Covenant Church congregations and institutions received more than $500,000 last year by taking advantage of the new tax credit, Johnson says. The amount of money gained probably was higher because Johnson says he was including only the churches he knew about.

Beneficiaries of the credit last year included Pilgrim Pines Conference Center, which received just over $20,000 and Modesto (California) Covenant Church, which received more than $6,000.

As part of the Affordable Care Act enacted in March 2010, the Health Care Tax Credit for Small Employers is designed to encourage both small businesses and small tax-exempt organizations (like churches) to offer health insurance coverage to their employees for the first time or to maintain coverage they already have.

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