The Internal Revenue Service said that the sequestration process could have an impact on the amount that certain small tax-exempt employers receive on the refundable portion of the Small Business Health Care Tax Credit.

The tax credit was included as part of the Affordable Care Act of 2010 as part of an effort to encourage more small businesses to offer health insurance coverage to workers. Budget sequestration was mandated under the Budget Control Act of 2011 in an effort to force lawmakers to reduce the budget deficit. But after the sequester resulted in automatic across-the-board cuts in many defense and non-defense programs, Congress agreed last year to soften the impact.

However, sequestration remains in place, news site Roll Call noted, 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.”

The IRS noted that affected taxpayers will be notified through correspondence that a portion of their requested payment was subject to the sequester reduction and the amount.

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