PORTLAND, Ore.–Some credit unions are getting money back from the IRS due to rules related to healthcare, with one pocketing almost $7,000 this year that it says can be a nice little bump to the bottom line for smaller CUs.

In December 2010, the IRS released guidance on how small employers may be eligible to claim a new small business healthcare tax credit starting with the 2010 tax year. The healthcare tax credit was created as part of the 2010 Affordable Care Act, aimed at encouraging small businesses, for-profit and not-for-profit, to provide healthcare coverage for their full-time staff.

Industry analysts are uncertain of the number of credit unions aware of the potential rebate or how many are choosing to take advantage of it. Furthermore, they acknowledge there can be complications for federal CUs that file for the money.

Mark Freels, manager of the $53-million Teamsters Council #37 FCU here, learned about the credit this year after talking with a colleague from another credit union that had received a few thousand dollars in rebates from the healthcare credit.

“So I talked with my accountant and he said to look into the application form,” explained Freels. “I did, filled it out, sent it in, and a check for $6,921 came back for 2011. Pretty sweet. With credit unions struggling with ROA, and especially smaller ones–it offsets somewhat the assessments we are paying and could even help a small credit union survive. It takes about 15 minutes to fill out a form and apply.”


How To Qualify

To qualify for the credit, a business must meet certain requirements, reports the Northwest Credit Union Association, which recently alerted its member credit unions of the opportunity. The business must pay premiums for employee health insurance coverage under a qualified plan, have fewer than 25 full-time equivalent employees for the tax year, and pay an average wage of less than $50,000 per FTE. Furthermore, the current maximum credit of 25% of insurance premiums paid will increase to 35% in 2014 for businesses with 10 or fewer FTEs and average annual wages of $25,000 or less. To file a claim for the credit, businesses must complete IRS Form 8941 and fill out the newly revised Form 990-T.

Freels does not believe many credit unions are aware of the money they are leaving on the table. “Recently I was at a meeting with 30 to 40 credit unions and I knew of only three that had filed for the credit.”

David Curtis, director of compliance services for the Northwest CU Association, said the NWCUA has received numerous calls from curious credit unions. “There was little activity by credit unions on this tax credit back in 2010, and for the most part I think credit unions forgot about it. Now they tell me they are excited to know about it.”

In Washington, CUNA EVP-General Counsel Eric Richard said he was uncertain how many credit unions are aware of the tax credit or how many are taking advantage of it. He also shared that some CUs may face a minor complication when they file. Richard explained that when credit unions submit Form 990-T, it triggers a search by the IRS computers for the credit union’s filing of Form 990. Since federal CUs do not file Form 990, the IRS computers flag that form as missing and spits out a notice that the credit union’s tax exemption is being revoked, because the institution has not field a 990 for three years. FCUs, unlike state-charted credit unions, are exempt from the unrelated business income tax (UBIT) and therefore do not have to file Form 990.

“The IRS failed to include in their computer programming some kind of exception for federal credit unions,” pointed out Richard. “In the last year or so I have received calls from dozens of credit unions across the country that have run into this problem with the IRS.”

Carrie Hunt, NAFCU’s VP of regulatory affairs and general counsel, believes a fair number of credit unions are aware of the credit, and said the trade association has apprised its members of it, but many are choosing to not take action due to the potential IRS hassle. “This issue with the IRS is likely to have had a bit of a cooling effect on some credit unions,” she said.

Richard explained that the IRS is aware of the matter and is now committed to fixing it. Richard explained that when federal CUs file for the tax credit, they could encounter the IRS issue, but should view it as an inconvenience.


'It’s A Nuisance’

“I would say it’s a nuisance now,” shared Richards, who said it took a lot of behind-the-scenes advocacy to get the IRS to do something. “This computer matter will likely happen again for federal credit unions that file for the credit, as the IRS is reluctant to reprogram its entire computer system. However, the IRS has educated its staff about the matter and set up addresses for people to contact them about this.”

Teamsters’ Freels said he received a letter from the IRS about not filing a Form 990, but he did not respond.

As for potential backlash from the bank trade associations related to tax-exempt CUs applying for a tax credit, CUNA spokesperson Pat Keefe said, “The banks are going to gripe about credit unions no matter what. But credit unions do have a right, and obligation on behalf of their members, to apply for the tax credit.”

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