For many years, churches have been permitted to reimburse employees for or directly pay the cost of individual health insurance policy premiums and exclude such amounts from the employee’s gross income. However, recent Internal Revenue Service guidance effectively eliminates these health care reimbursement plans after December 31, 2013. Group health insurance policy premiums paid directly by the church to the insurance provider are still allowed on a nontaxable basis. When the church moves from a group to individual policies, any payments to the insurance provider or employees are now considered taxable income to the employee. A church is still allowed to establish an arrangement under which an employee may choose between cash or an after-tax amount to be applied toward health coverage. The church is just not permitted to provide reimbursement on a pre-tax basis. Some churches have identified a cost savings when moving to individual coverage. However, each employee will have an increase in their tax liability. NOTE: Churches with only one employee are eligible to set up a standalone HRA to pay for individual health care premiums and miscellaneous medical expenses on a pre-tax basis. Source: Clergy Financial Resources
Clergy Financial Resources is a national accounting and finance organization serving churches and clergy since 1980. They have an unparalleled tax expertise on the complex issues associated with clergy tax law, clergy taxes, clergy compensation and church payroll. Clergy Financial Resources is a valuable resource for clergy, churches and denominations.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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