Gary Bode, CPA: if Form 8941 preparation seems daunting, consider calling us for a free phone consult at 399-2705.
Form 8941 tax preparation seems to baffle folks; it’s the most frequent Google search term to our website. The IRS states that learning and preparation of tax Form 8941 generally exceeds three hours. But I just consider it just another IRS form on your company’s Schedule C, Form 1120-S, Form 1065 etc.
Hi, I’m Gary Bode, a Form 8941 CPA with a virtual office to serve your company regardless of it’s location.
Form 8941, Credit for Small Employer Health Insurance Premiums, calculates your company’s business health care tax credit. It attaches to your company’s annual tax return. For 2013, tax exempt entities would use Form 990-T instead of Form 8941. Here’s a link to our past Form 8941 post.
Mechanics of Form 8941, Credit for Small Employer Health Insurance Premiums
IRS tax Form 8941 looks complex because it covers multiple employer scenarios. But I think understanding the odd terminology the IRS uses is half the battle. So if you’re self preparing, that’s where I’d start. The underlying information for Form 8941 preparation uses payroll records and accounts payable ledgers. Like most IRS issues, there are plenty of details. I find it interesting how the potential credit on Form 8941 dwindles line by line.
Line 1 - Who are Qualifying Employees for Form 8941, Credit for Small Employer Health Insurance Premiums?
Generally, any employee, for which your company pays at least 50% of their health insurance premiums, qualifies. But the instructions list plenty of exclusions and exceptions, most notably, greater than 2% shareholders of S Corporations, the owner of a sole proprietorship and a partner in a partnership. Note that for 2013 employers can include different classes of health insurance.
Line 2 - Form 8941 FTE (full time equivalent) Calculation and Phase Out
- Add the total hours worked by full and part-time qualifying employees for the year.
- Divide by 2080, the number of hours in a full work year (40h x 52w) .
- Round down to the next whole number.
- The tax credit begins to phase out when a company employs more than 10 “full time equivalent” employees (FTE).
- No tax credit exists if a company has more than 25 FTEs.
- Note the company could have more than 25 people employed, since Form 8941 uses the hours worked to calculate FTE.
Line 3 - Average Annual FTE Wages – Generally Line 3 is total wages paid to qualifying tax credit employees divided by the number of FTEs (Line 2). But see the 8941 instructions for exceptions.
Line 4 – Amount of Insurance Premiums Actually Paid
Sounds simple enough, but again read the instructions for IRS wrinkles.
Line 5 – the Limit on Insurance Premiums
The IRS sets upper limits for qualifying health insurance premiums for Form 8941. The instructions include a table delineating this figure by State. It may change from year to year.
Cash Flow Considerations of Form 8941, Credit for Small Employer Health Insurance Premiums
Your company pays health care insurance premiums now, but gets the credit next year. This delay requires careful cash flow management. Insurers tout this credit as an incentive, just as the government intended. But the actual amount and timing deserve due diligence.
We’ve developed a spreadsheet that helps evaluate alternate scenarios for employers on health insurance decisions and the Form 8941 credit. It deals with the “numbers” side of the decision, with some follow through to expected cash flow. But offering health insurance as a fringe benefit has intangible aspects, too, like improved employee retention.
We’re a CPA firm that serves a wide geographical base through our virtual office. By IRS standards, Form 8941 preparation is straight forward. But, if you want an initial free phone consult, please call (910) 399-2705.
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As a volunteer for a small non-profit org., I was told that the credit for small employer health insurance premiums could not be claimed on our Form 990 as our two employees made more than $15,000/each per year. I had understood that there was an average wage limitation of much higher than this amount, but wasn’t aware of this caveat. Is this limitation correct?
Well John, that’s not true per se. It does use an average wage. Generally, if the average wage is more than $50,000, the credit is unavailable. The only differences in applying Form 8941 to a non-profit, that I’m aware of, is a) the potential maximum credit and is reduced to $15,000 and 2b) using Form 990-T. Hope that helps.
I am a single person/owner/employee of a Sub S corp. Do I need to concern myself with the Form 8941? It is my understanding that I can expense my health insurance premiums as other deductions on my 1120S Ln 19, which reduces my S Corp income on my 1040 Ln 17, add the premiums to my 1040 Ln 7 income, then subtract them again on Ln 29 (Self-employed health insurance deduction). Sounds pretty screwy, but is that correct?
Mark, was the health insurance in the company’s name? Did you pay the premiums through payroll to yourself? Form 8941 excludes greater than 2% shareholders, so you can’t go that route.
two questions
1- line 3-is it the total salaries of all employees or the total salaries of all covered emploees divided by the total ftes
2-line 5- does the total premium mean the total for all eligible employees or the total for the covered employees only
Actually Paul, that’s really too technical a question without engaging us. We intend to post a “how to” guide eventually. Maybe another CPA already has one you can peruse.
Hello. I have a non-profit that employs mentally handicapped individuals to assemble items for companies, recycle items for companies, etc. These individuals are paid on a “per piece” basis, not hourly, and have nothing to do with the actual “employees” of the organization. Do I need to include their wages on the 8941 form with the other actual employees of the non-profit org. and, if so, how do I put in the number of hours since their pay is not based on hours? Thank you.
Jamie
Well Jamie that’s a great program. You have a tax research question. One idea might be to find other non profits doing similar things and ask how they handle it. Tax research can be pricey.
I am the Financial Secretary for a tax-exempt church. Our insurance is List Billed with more than one tier. All three pastors have family coverage for which the church pays 100%. While one other non-pastoral employee has single covered for which he pays 50% and the church pays 50%. I have tried to research and determine if we qualify to file Form 8941 for a Health Insurance Tax Credit and seem to find it difficult to make this determination. Your counsel would be most appreciated.
Well Kim it sounds like the Church files Form 990. Unless there’s a taxable component to Form 990 you wouldn’t even need the credit? Maybe I’m not understanding something.
I apologize. I am referring to the Small Business Health Care Tax Credit. We have only filed Form 990T to submit form 8941 for the credit. I am just unsure about our insurance and if it would qualify as a uniform plan.
OK Ken I get it. The credit is refundable. There are lots of good examples on the net. Without more info I’m not sure the Church qualifies.