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The amount that certain small tax-exempt employers receive on the refundable portion of the Small Business Health Care Tax Credit may be impacted by the sequestration process of the Internal Revenue Service (IRS).

As part of an effort to encourage more small businesses to offer health insurance coverage to workers, the tax credit was included as part of the Affordable Care Act of 2010. In an effort to force lawmakers to reduce the budget deficit, budget sequestration was mandated under the Budget Control Act of 2011.

Congress agreed last year to soften the impact after the sequester resulted in automatic across-the-board cuts in many defense and non-defense programs.

However, sequestration remains in place, and the IRS warned that it could affect small, tax-exempt employers such as charities who have chosen to receive refundable tax credits for providing health care coverage to employees, reducing the amount of the refundable portion by 7.3%.

Due to sequestration, refund payments issued to certain small tax-exempt employers claiming the refundable portion of the Small Business Health Care Tax Credit under Internal Revenue Code section 45R, are subject to sequestration,” said the IRS on its web site. “This means that refund payments processed on or after Oct. 1, 2014, and on or before Sept. 30, 2015, issued to a tax-exempt taxpayer claiming the Small Business Health Care Tax Credit under section 45R will be reduced by the fiscal year 2015 sequestration rate of 7.3 percent (regardless of when the original or amended tax return was received by the IRS). The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change. Sequestration only affects the refundable portion of the Small Business Health Care Tax Credit filed by tax-exempt employers.  Sequestration does not impact Small Business Health Care Tax Credit claims by non-tax-exempt employers, as the credit is not a refundable credit for non-tax-exempt employers.”

Affected taxpayers will be notified through correspondence, by the IRS, that a portion of their requested payment was subject to the sequester reduction and the amount.