In most cases, tax-exempt organizations have little to be excited about when the government starts handing out cash. Since they don’t pay taxes, they usually don’t get tax deductions or credits.A tax refund for tax-exempt organizations is highly unusal to say the least. Fortunately, for most tax-exempt organizations, the Affordable Care Act has them covered*.
In most cases, when the government allows special tax deductions or credits, non-profits can actually be harmed due to market corrections that absorb the tax law changes. For example, a tax credit for energy efficient equipment will create more demand for such equipment and drive up prices, but organizations who don’t pay taxes won’t get the credit. This is certainly a concern for many churches and other non-profit organizations who are watching their insurance rates steadily rise along with everyone else.
The good news is that a smaller version of the Affordable Care Act tax credit will cover non-profits and provide them with a refundable tax credit even though they don’t pay taxes. Instead of the 35% maximum credit, the non-profit credit is limited to 25%, and the other limitations apply as well. For example, they still have to have 25 or fewer employees with average salaries of $50,000 or less to qualify. However, since the tax credit is refundable for non-profits, they will get that money directly instead of passing the credit through to shareholders or partners as a non-refundable personal credit subject to carryover rules.
*As always, there are caveats. In this case, many churches will be excluded. Non-profit Affordable Care Act tax credits are limited to what employees are required to withhold in Federal Income taxes and Medicare taxes. This means that churches with pastors who are exempt from FICA taxes will not receive any credit towards those pastors health insurance costs. Churches are not required to withhold Federal Income taxes from clergy wages, though many still do in lieu of having pastors make estimated tax payments.
Overall this could help ease the cash flow burden of many non-profits whose funding has been down since the recession of 2007 began.