ExpressTaxExempt Blog

Tax-Exempt Retention for Hospitals

With the most recent changes in tax-exempt requirements and healthcare reform, nonprofit hospitals are facing several challenges with exemption classification and retention. Experts say that nonprofit hospitals receive about $13 billion in tax exemptions annually - that’s a significant amount of money that law officials believe can efficiently fund federal, state, and local programs, if imposed.

However, the opposition argues that enforcing taxes on nonprofit hospitals will not only affect staff, medical programs, and equipment but also lead to higher payments for patients. Even though there is no mandated threshold, state laws typically expect a nonprofit hospital to provide charitable services that value over 1% of gross receipts.

Here are a few other suggestions from tax professionals about maintaining tax-exempt status for a nonprofit hospital:

  • Comply with the new tax-exempt requirements established by the Patient Protection/Affordable Care Act (PPACA)
  • Express the hospital’s capabilities of accepting Medicaid and Medicare patients and services for low-income patients
  • Develop rebuttable cases that show reasonable compensation relationships
  • Build and retain documents showcasing charitable benefits and charity care the hospital annually provides for the community
  • Prove that any money received for community benefit purposes is used exclusively for that activity such as medical research or health education

State courts have also established reasons that can prevent tax-exempt entitlement for a nonprofit hospital:

  • Little or no patients receive free or discounted care
  • The value of free care provided is minimal
  • Immediately refers unpaid bills to collections
  • Charges full rates for uninsured patients
  • Fails to provide straightforward benefits to the community it serves

It’s critical for board members to review their hospital’s methods and operations each year and ensure that they’re following the guidelines to classify as tax-exempt. It’s just as important as being compliant with the IRS and filing your annual 990 form with Schedule H.

ExpressTaxExempt’s cloud-based service allows nonprofit organizations and hospitals to file 990 forms, schedules, and extensions quicker and easier than paper filing. Contact our U.S. - based customer support team for any questions or assistance with electronically filing tax-exempt returns. Call us at 704.839.2321, Monday through Friday from 9 a.m. to 6 p.m. EST or send a message to support@ExpressTaxExempt.com.

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