Impact of Tax Reform on Federally Qualified Health Centers
In 2018 tax law saw the most significant change in over 30 years. Usually, we don’t think of Federally Qualified Health Centers as being impacted by tax law change as they are, generally, non-taxpaying organizations. However, this time it is different.
Do you provide any form of transportation and/or parking benefits to your employees? If so, you may be surprised by having a tax bill to the IRS on your next 990, possibly for the first time in your organization’s existence! The Tax Cuts & Jobs Act (TCJA) modified certain employee transportation fringe benefits to no longer be deductible for businesses. For nonprofits, certain employee transportation fringe benefits may be taxable. Yes, you read correctly, you may be subject to “income tax” on certain expenses paid!
Do you receive any private support in the form of contributions or awards? The TCJA implemented multiple changes that can reduce the tax incentive of charitable donations. The standard deduction nearly doubled and the itemized deduction for state and local taxes (the largest itemized deduction for many taxpayers) has been limited to $10,000. What does that mean? There will be far fewer taxpayers itemizing deductions starting in 2018; standard deduction taxpayers do not receive a tax benefit for charitable donations. Consider soliciting this type of revenue as sponsorships and/or advertising value as opposed to donations.
One of the positive changes for Federally Qualified Health Centers is the increased limit of the charitable donation deduction to 60% of the taxpayer’s adjusted gross income (increased from 50%). However, it is in pretty rare circumstances that a taxpayer provides charitable giving to such an extent.
The final impact of these changes is unknown as the practical application of the rules and future authoritative guidance remain to be seen. There are additional changes that could impact your organization as well. It is encouraged that you reach out to your tax professional to see how the above considerations may apply to you.