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.
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.