GARBC treasurer Michael Nolan offers the following information regarding church-paid (or reimbursed) medical insurance benefits:
Prior to the Affordable Care Act, churches could pay for employees health care directly to the provider or they could reimburse employees for insurance premiums. This was covered in the tax code under section 106, which states that when you calculate gross income it does not include employer provided coverage of a health plan or the qualified reimbursement. The costs of this coverage could be excluded from taxes. However, the parameters have changed. (Read more.)
In late 2013, the IRS and Departments of Labor and Health and Human Services released IRS Notice 2013-54, which states that two of the Affordable Care Act’s changes apply to all “group health plans,” with a few exceptions, and it defines group health plans to include plans under which an employer pays for an employees insurance premiums directly to a provider and also where an employer reimburses an employee for some or all of the premium expenses for an individual health insurance policy. Effective January 1, 2014, these “reforms” from the Affordable Care Act contain several “reforms” of the insurance market that apply to “group health plans.” Employers face possible penalties if they do not comply and employees face additional tax liability. Many churches are confused about what does apply to them and what does not, and the implications for their health care coverage and their reimbursement plan.
Exceptions to these changes exist. The market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year. www.irs.gov states, The Affordable Care Act contains certain market reforms that apply to group health plans (the market reforms). In accordance with Code § 9831(a)(2) and ERISA § 732(a), the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year, and, in accordance with Code § 9831(b), ERISA § 732(b), and PHS Act §§ 2722(b) and 2763, the market reforms also do not apply to a group health plan in relation to its provision of excepted benefits described in Code § 9832(c), ERISA § 733(c) and PHS Act § 2791(c). Excepted benefits include, among other things, accident-only coverage, disability income, certain limited-scope dental and vision benefits, certain long-term care benefits, and certain health FSAs. This means that one full-time employee churches are exempt. No excise taxes, no penalties, and no compliance with these “reforms.”
Churches that have fewer than two full-time equivalent employees covered under a health plan have several options:
- Church pays for the health care coverage premiums directly.
- Church pays to reimburse for certain medical expenses.
- Church provides group health plan and can include flexible spending accounts (FSA).
- Church provides no health care coverage or reimbursement.
If your church has more than one full-time employee and would like to know more details, please email me, firstname.lastname@example.org.
The preceding information is gathered from www.irs.gov, www.churchlawandtax.com, publications from attorney Richard Hammer, ECFA, and Capin Crouse tax advisors. Each church should have their plan reviewed by legal counsel and a tax professional to ensure compliance with the Affordable Care Act or confirm if the church plan is an exception to the market reforms.