Churches “MAY” be able to pay for employee’s health insurance as a nontaxable fringe benefit!

There may still be a way for churches to pay for employee’s health insurance as a nontaxable fringe benefit.  IRS Notice 2013-54 points out three possibilities:

• The Affordable Care Act (the ACA) does not apply to group health plans that have fewer than two participants who are current employees on the first day of the plan year. (This is IRS-Speak; fewer than two participants actually means one participants; but, with IRS-Speak you need to use bureaucratic language which has only a passing relationship with English.)
• The ACA does not apply to “excepted benefits”. These are, according to the IRS, “among other things, accident-only coverage, disability income, certain limited-scope dental and vision benefits, and long-term care benefits and certain health FSAs.”  The plans are not necessarily prohibited for failing to comply with the ACA.
• Another option that may possibly allow churches to continue to pay employee insurance premiums on a pre-tax basis is to participate in the Small Business Health Options Program (SHOP) marketplace.

Guidestone, a program associated with the Southern Baptist Convention, cites the following example:

• We have two employees – our pastor and our children’s minister. Our children’s minister has coverage through her husband’s employer. Therefore, we only reimburse the pastor’s premium, which he purchased in the individual market. Are we subject to the new rules?
  • Answer – No. Because you are only contributing toward the premium for one employee, you are not subject to the new rules. However, if you decide to contribute to both employees’ health coverage, you will need to purchase group health coverage in order to stay in compliance.

This is our thinking; if we have a church where only one person is participating in a group health plan such as the plan GuideStone provides, then that church is not subject to the ACA.  What that means is that such health coverage can be structured as a TAX FREE Fringe benefit!

This is kind of a big deal.

If you have a small church where, in 2014 or 2015, only one person is covered by health insurance, we need to take a fresh look at the arrangement.  There is a chance that we may be able to amend tax returns to minimize your tax burden.

Also: please feel free to forward this email to you friends and cohorts who may be interested.