Answering a question about small employer health insurance credits

One of the readers on our 401kcpa blog asked a question about the small employer health insurance credit. I answered the question, and think that it’s relevant for readers of this blog:

The question:

Our church has three pastors.  One pastor has a family plan that we pay.  The other pastor is retired and we reimburse him for him and his wife’s Medicare and Medicare supplement insurance.  The third pastor’s wife works and has insurance through her employer.  We reimburse him the amount withheld from her check for insurance.  Are any of these eligible for the 8941 tax credit?


The credit for small employer health insurance premiums is only available for premiums paid directly by the employer.  This means that any reimbursements paid to employees are considered fringe benefits to the employees, but the employer may not claim credit on Form 8941 for reimbursements for payments employees make to other plans.

Whether or not a credit may be claimed for the pastor on the family plan depends on several criteria.

1) The church must pay premiums for employee health insurance under a plan offered by the church.  This credit (25% for non-profit entities) is claimed by filing Form 990-T along with Form 8941.

2) The church must have fewer than 25 fulltime equivalent employees (FTE’s) for the year.  Ministers do count as employees for the purposes of calculating this credit, even though they are treated as self-employed for social security and Medicare purposes.

3) The church must have paid average annual wages for the tax year of less than $50,000 per FTE.

If you think you have met the three criteria listed above, you should then refer to the Form 8941 instructions.  This credit involves many complex calculations that must be considered on a case-by-case basis to determine whether the credit is available and worth filing the necessary paperwork to claim it.

For additional assistance, please contact one of our tax advisors and set up a consultation to discuss the details of your particular situation.

Remember, we also have a blog specific to churches,