Qualified synagogues- those with 25 or fewer "full time equivalent" employees and average wages less than $50,000) may be eligible for the Tax Credit if they contribute a uniform percentage of at least 50% towards the cost of their employees' health insurance (there is a limited exception to this uniformity requirement for 2010).
(This information is intended
to be educational and informational for synagogue leaders. The Union for Reform
Judaism does not provide tax advice. We urge you to share the enclosed
information with your legal and tax advisors.
In addition, the filing for
this credit raises nuanced and complex church-state separation issues, which
neither the URJ nor other arms of the Movement have had time to address fully.
Does taking a tax credit constitute government funding of synagogues? Does
setting up a system requiring, for the first time, synagogues to file a 990-T
to receive benefits weaken our position opposing current Congressional efforts
to require churches and synagogues to file the much longer, more complex and
more intrusive full 990 forms from which we have always been exempt. Indeed does it jeopardize a whole range of
special exemptions and protections that we have? These issues are being
analyzed along with an array of new church-state questions facing the Movement
and the process along with our recommendations will not be completed before
this year's deadline. We ask each
synagogue's leadership to read the material carefully and use its own judgment
at this time. )
Patient Protection and Affordable Care Act ("PPACA") established a Small
Business Healthcare Tax Credit as an incentive for small employers (including
religious institutions) to provide health insurance coverage to their
employees. Qualified synagogues- those with 25 or fewer "full time equivalent"
employees and average wages less than $50,000) may be eligible for the Tax
Credit if they contribute a uniform percentage of at least 50% towards the cost
of their employees' health insurance (there is a limited exception to this
uniformity requirement for 2010).
synagogues as well as all tax exempt organizations, the Tax Credit can be up to
25% of premiums paid and will take the form of a refundable credit against the
amounts the synagogue is required to withhold from its employees' wages for
Federal Income Taxes and Medicare Tax, plus the employer share of Medicare
Taxes (the credit is therefore also limited to these amounts).
Please note: synagogue
contributions to health reimbursement arrangements (HRAs), health savings
accounts (HSAs), and health flexible spending accounts (FSAs) are not eligible
premiums for purposes of computing the Tax Credit.
The Tax Credit Works
with no more than 25 full time equivalent employees (FTEEs) and average
employee wages of less than $50,000 are eligible for the Tax Credits if they
offer "qualifying health care insurance coverage (from a licensed insurance
company or a self-funded church plan) under a qualifying contribution
arrangement" (defined below). The amount of the credit for synagogues in 2010
through 2013 is equal to the applicable percentage up to 25% of the lesser of
the following two costs:
the total amount the synagogue contributes (not counting contributions of
the employee) for qualified health insurance coverage, or
the total amount the synagogue would have paid if each employee taken into
account in (1) were covered by a policy with a premium equal to the
average premium for the small group market in the state (as determined by
the Department of Health and human Services (HHS) and published by the
Internal Revenue Service (IRS) in Revenue Ruling 2010-12 (http://www.irs.gov/pub/irs-drop/rr-10-13.pdf).
These premiums are also reprinted in the instructions to Form 8941 (http://www.irs.gove/pub/irs-pdf/i8941.pdf).
This limits the value of the credit for higher cost plans.
synagogues do not pay federal income taxes, it would apply the Tax Credit, up
to 25% of the premium paid (subject to the maximum amount described above) as a
refundable credit against certain payroll tax obligations such as withholding
of the employee portions of Medicare Taxes and federal income taxes, as well as
the synagogue's share of Medicare Tax obligations.
The Tax Credit is limited for a
synagogue to the amount of its payroll obligations for all synagogue employees.
Tax Credit is prorated based on the number of employees and the average wages.
The full amount of the Tax Credit is available to synagogues with 10 or fewer
FTEEs and whose employees have average wages less than $25,000. The Tax Credit
is phased out as the FTEE count and average wages increase. No tax credit is
available to synagogues with more than 25 FTEEs or whose average wages exceed
Full time employees and Average
specifically excluded, all synagogue employees during the year for which the
Tax Credit is being claimed are taken into account when computing the
synagogue's FTEEs, annual average wages, and premiums paid - including former
synagogue employees who terminated employment during the year and employees who
do not enroll in the synagogue's health insurance plan (whether or not they are
covered under another health insurance plan).
synagogue calculates its number of FTEEs by dividing the total hours worked by
all staff during the year by 2080. Synagogues may round down to the nearest
whole number (not less than 1) of FTEEs, so 5.99 become 5. For all staff, the
maximum number of hours that are counted for any one employee is 2080. IRS
Notice 2010-82 (http://www.irs.gov/pub/irs-drop/n-10-82.pdf)
and the corresponding FAQs (http://www.irs.gov/newsroom/article/0,,id=220839,00.html)
state that synagogues may apply different methods of calculating employees'
hours of service for different classifications of employees (counting actual
hours, using a days-worked or a weeks-work equivalency, as long as the
classifications are reasonable and consistently applied.
for the purpose of the Tax Credit, are those wages subject to Social Security
payroll taxes (FICA). As discussed below, wages paid to clergy are excluded
from this calculation as clergy wages are not subject to FICA. Synagogues
calculate average wages by dividing the total wages paid to all staff
(excluding wages paid to clergy) by the number of FTEEs (including FTEEs who
are clergy), rounded down to the nearest $1000. Seasonal staff are only
included when they have worked for 120 days or more in any one tax year (The
premiums paid for seasonal staff are included in the total premium amount used
for computing the credit).
Special Treatment of Clergy
and Cantors are generally considered self-employed for Social Security (FICA)
and Medicare Tax purposes. Depending on the situation, clergy may be considered
employees for purposes of the Tax Credit.
A synagogue must determine whether its Rabbi(s) and/or Cantor(s) satisfy
the requirements of the common law test for determining worker status. This is
the same test that a synagogue follows to determine whether its Rabbi and/or
Cantor is a synagogue employee subject to Form W-2 reporting or an independent
contractor subject to Form 1099 Tax reporting. If the synagogue is already reporting the wages of its Rabbi(s) and/or
Cantor(s) on a Form W-2, the Clergy in question are most likely employees for
the purposes of the Tax Credit.
synagogue's clergy receive form 1099 annually for the purposes of tax
reporting, and are treated as self-employed, he/she is not taken into account
for the Tax Credit. If he/she is considered an employee, he/she is included in
the synagogue's employee count and the health insurance premiums paid for the
coverage of the clergy are counted towards the Tax Credit.
important to note that even when counted as an employee for the purposes of the
Tax Credit, the Rabbi's and/or Cantor's compensation is excluded from the
synagogue's calculation of average wages because it is not subject to FICA.
Such exclusion may be advantageous to some synagogues resulting in a lower
overall average wage. The salaries of
the Rabbi and/or Cantor are excluded from the calculation but the Rabbi and
Cantor are included in the calculation of the number of FTEEs.
of the employment status of Rabbis and Cantors, synagogues do not pay Medicare
Taxes on their behalf or withhold Medicare Taxes from their pay. Many
synagogues do not withhold federal income tax from their compensation. The Tax
Credit is limited to the aggregate amount of withholding of federal income and
Medicare Taxes, plus the synagogue's portion of Medicare Taxes. In future
years, Rabbis and Cantors may wish to voluntarily have the synagogue withhold
federal income taxes from their compensation to increase the utility of the Tax
Credit (Both the synagogue leadership and clergy should consult their tax advisors
to determine the best course of action). Self-employment tax payments are not
considered in terms of the Tax Credit.
synagogue must make a non-elective contribution (not through a Health Savings
Account or Health Flexible Savings account) on behalf of each employee who is
enrolled in coverage that is not less than 50% of the premium cost of the
qualifying health insurance coverage. The rules vary depending on, among other
things, whether the synagogue offers a single health insurance plan or more
than one plan, the insurer uses composite billing or list billing, or whether
the synagogue offers a more expensive tier of coverage than single coverage.
requirement applies to the premium for single (employee-only) coverage. If a
synagogue employee is receiving coverage that is more expensive than single
coverage (family) the synagogue need only pay at least 50% of the premium for
single coverage for that staff member (even if it is less than 50% of the
premium for the coverage the employee is actually receiving). The synagogue's
contribution must also be a uniform percentage of the premium cost for all
2010 Transition Relief
IRS issued transition relief for 2010 only so that synagogues that pay at least
50% of the premium for single coverage for each employee enrolled in coverage
will not fail to maintain a qualifying arrangement merely because the synagogue
does not pay a uniform percentage of the premium for each covered employee.
Claiming the Credit
will first need to complete Form 8941 (http://www.irs.gove/pub/irs-pdf/f8941.pdf)
to calculate its refundable Tax Credit. Then a synagogue will claim the Tax
Credit on Line 44F of Form 990-T (http://www.irs.gov/pub/irs-pdf/f990t.pdf).
Most synagogues do not typically file Form 990-T as it is used when there is a
tax obligation for unrelated business income. Form 990-T must be used in this
instance by a synagogue in order to claim the Tax Credit, regardless of whether
the synagogue is subject to the tax in unrelated business income.
Synagogues with a fiscal year
ending December 31, 2010 wishing to claim the Tax Credit for 2010 must submit
Form 990-T to the IRS by no later than May 15, 2011. All other synagogues must
file Form 990-T by the 15th day of the 5th month after
the end of its fiscal year.
Step 1: Determine whether
your synagogue is eligible le for the Tax Credit by completing the following
A. Calculate the number of FTEEs
(see sections IV and V above). If this number is 25 or fewer, go to B.
B.Calculate the average wages of
your synagogue's employees (see sections IV and V above). If the average wages
are less than $50,000, go to C.
Step 3: For congregations with a fiscal year ending
on December 31, 2010, submit a claim for the calculated Tax Credit on Line 44f
of form 990-T by May 15, 2011.
Congregations with a different fiscal year (for example, July 1, 2010 to
June 30, 2011) must file form 990-T by the 15th day of the 5th
month following the end of its fiscal year.
in Illinois employs one Rabbi. He receives a form W-2 from the synagogue. The
synagogue also has 1 full time non-clergy employee and 2 part time non-clergy
employees. The Rabbi's salary is $87,000. Employee #1 is paid $45,000, employee
#2 is paid $25,000, and employee #3 is paid $25,000. The Rabbi, employee #1 and
employee #2 are enrolled in a health insurance plan.
synagogue pays 100% of the rabbi's single employee only premium. The synagogue
pays 75% of the single employee only premium for employees #1 and #2. It pays
$22,800 for the Rabbi's coverage and $17,100 for the other 2 employees,
totaling $ 34,200. A total of $57,000 is paid in health insurance coverage.