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Small CUS may benefit from health care tax credit

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WASHINGTON (10/25/10)—Small credit unions may want to look into a new small business health care provision to determine if they may qualify for a tax credit. The credit, authorized under the 2010 Patient Protection and Affordable Care Act ,is intended to encourage small employers to offer health insurance coverage for the first time or to maintain current coverage for their employees. It is generally available to small employers that contribute at least half the cost of single health insurance for their employees. The credit is designed to assist small businesses and tax exempt organizations that primarily employ moderate- and lower-income workers. Small credit unions may be eligible for the tax credit if:
* The credit union has fewer than 25 full-time equivalent employees for the taxable year; * The average annual wage of employees for the year is less than $50,000; and * The credit union makes a "nonelective contribution," which is a contribution that is not made in accordance with a salary reduction agreement and that covers at least 50% of the employees' health care premiums--as long as the credit union provides the same percentage of premium contributions to all employees.
During tax years 2010 to 2013, eligible tax-exempt employers could receive a maximum tax credit of 25% of the employer's premium payments--(nonelective contributions to employee healthcare) notes Nichole Seabron, Credit Union National Association federal compliance counsel. Starting in 2014, the maximum tax credit for eligible tax-exempt employers would increase to 35 of the employer's premium payments for two years. However, the amount of the tax credit a credit union may claim may be less than the permitted amount. For example, a credit union's tax credit could be reduced by "phaseouts" if it has more than 10 employees or if the average compensation of those employees exceeds $25,000. It is unlikely, though, that the tax credit would be reduced by zero unless the credit union has 25 or more employees or if the average annual wages of the employees is $50,000 or more. Additionally, employee wages would be indexed after 2013 for cost of living. Credit unions may be able to use this tax credit to offset the Medicare "hospital tax" and other payroll taxes. Ultimately, credit unions will have to consult their tax advisors to determine eligibility for this credit. The IRS posted a draft version of Form 8941, which will be used by tax-exempt organizations to calculate the credit. The final version of Form 8941 should be available later this year. Tax exempt organizations will claim the small business health care tax credit on Form 990-T. Form 990-T is currently used by state-chartered credit unions to report unrelated business income. Federal credit unions aren't currently required to complete Form 990-T. However, it appears that in order to claim the tax credit, federal credit unions will be required to complete the IRS form. Form 990-T will be revised for the 2011 filing season to enable eligible tax exempt organizations--even those that normally don't report or owe unrelated business income--to claim the small business health care tax credit. A press release with this health care tax credit information can be accessed through the link below.

CUNA CUNA Mutual join in Reg Z comment drive

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WASHINGTON (10/25/10)--The Credit Union National Association (CUNA) is working closely with CUNA Mutual to raise awareness of the negative aspects of the Federal Reserve’s proposed disclosures that would be required for credit insurance and debt cancellation and suspension products. CUNA and CUNA Mutual, through a grassroots operation called “Operation Comment,” are encouraging credit unions to report their concerns with the proposals to the Fed. Credit unions should also address how these proposed disclosures will discourage consumers from purchasing payment protection products. Jeff Bloch, CUNA senior assistant general counsel, said that activating CUNA's Operation Comment at this time “is one important part” of the Fed-centered response, which CUNA has successfully used in the past for other problematic regulatory proposals.” These new disclosures for credit insurance and debt cancellation and suspension products are misleading and would likely discourage consumers from purchasing those products. These disclosures are being proposed in addition to other consumer protections and mortgage loan disclosures. These will change the rescission provisions and will change the disclosures and other requirements for reverse mortgage loans. The proposal also seeks to ensure that borrowers are supplied with new disclosures when the key terms of a closed-end mortgage loan are modified. CUNA has said that the disclosures “go well beyond ensuring that consumers are informed about these products,” instead casting the products “in a strictly negative light” and strongly discouraging the purchase of the products. For CUNA’s comment call, use the resource link.

Compliance Must CUs charge STS loan processing fee

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WASHINGTON (10/25/10)—The National Credit Union Administration (NCUA) issued a new rule recently to allow credit unions to offer members small-amount, short-term (STS) loans, but there has been some confusion about fees, according the Credit Union National Association’s (CUNA's) October Compliance Challenge. ABC FCU, says the Challenge, would like to offer the STS loans to members as an alternative to predatory payday lending available in the area. The credit union lending officer has read CUNA’s final rule analysis and is aware that credit unions are allowed to charge a maximum application fee of $20 to be used for processing costs. However, the credit union doesn’t normally charge fees for unsecured loans and would prefer not to do so. Does it have that flexibility for this product? Yes, it does. Although CUNA had to contact the NCUA to get clarification on this particular issue because the rule, unfortunately, does not specifically address whether or not the application fee is voluntary. In fact, some of the language of the regulation seems to suggest that a credit union would be required to charge the application fee to all members granted an STS loan in order to charge the maximum rate (28%) for the loans. Bit the NCUA clarified that the application fee is voluntary. However, iif a credit union opts to charge the fee, the maximum fee permissible for an STS loan is $20.