The Internal Revenue Service (IRS) and Department of Labor (DOL) issued guidance (DOL technical release 2013-03 and IRS Notice 2013-54) that may impact how your church funds medical coverage for some employees. The guidance states that, effective July 1, 2015, organizations may no longer directly pay premiums for an individual health insurance policy [a health insurance policy for an individual or family purchased directly from an insurance company (an â€śissuerâ€ť) or through the Affordable Care Actâ€™s Marketplaces (also called exchanges)] for an employee, nor reimburse an employee who purchases an individual health insurance policy with dollars that are excluded from the employeeâ€™s taxable income. These arrangements are sometimes called â€śEmployer Payment Plansâ€ť [EPPs] or stand-alone health reimbursement arrangements (HRAs).
Although non-taxed Employer Payments Plans and stand-alone HRAs are no longer permitted, an employer can create an Employer Payment Plan to directly pay the premium for an individual health insurance policy covering the employeeâ€”if the employer payments are considered taxable income (i.e., if the employee is taxed on the payments) and the arrangement satisfies a few other requirements:
1. No contributions are made by the employer, i.e., the payment is part of the employeeâ€™s taxable salary that is being forwarded by the employer to the insurance issuer.
2. Participation in the program is completely voluntary for employees.
3. The employer collects premiums through payroll deduction and remits them to the insurer without endorsing the program.
4. The employer receives no consideration (e.g., cash) other than reasonable compensation for administrative services rendered to collect the premiums.
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.