By Richard Skidmore
Financial Support Specialist, TBC
It is quite possible that beginning this past January your pastor or other church staff member began being taxed on their health insurance premium.
It will be the church’s responsibility to report the amount of the premium as taxable income as part of the salary paid to this person.
How can the Affordable Care Act that had as its centerpiece making health insurance more accessible and more affordable have this result? That is a question that seems hard to fathom but it’s a reality churches and ministers must face.
Late in 2013, IRS Notice 2013-54 was issued that has a devastating financial impact on employers and their staff who have individual insurance. The interpretation of that bulletin has CPAs and tax attorneys issuing articles telling churches that these premiums will have to be included as salary on form W-2 for 2014.
According to information on the GuideStone Financial Resources website: “Beginning Jan. 1, 2014, the Affordable Care Act (ACA) mandated new rules around how employers can assist employees with the cost of health care coverage through reimbursement vehicles such as health reimbursement arrangements (HRAs) and Section 125 plans including premium-only cafeteria plans (POPs) and flexible spending accounts (FSAs). The details of these impacts can be complicated, but one of the largest impacts is fairly straightforward: employers may no longer pay for their employees’ individual health insurance policies on a tax-free basis.”
These new rules are being interpreted to have this impact if the employer pays the cost of the premium directly to the insurance company or reimburses the person for payment of the premium.
The key term is “individual” health insurance. “Group” insurance premiums may still be paid on a tax-free basis. One piece of good news is that all GuideStone health insurance is “group” insurance.
This news is certain to have a horrible financial impact on pastors. When you realize that ministers pay all of their Social Security tax in addition to federal income tax, you are looking at a tax of 25 percent or more on the premiums paid for health insurance.
Churches will have to make the determination of if and how to report these premiums quickly. The fine for failure to report can be as much as $36,500 per year. Consultation with their medical insurance company and a tax professional will probably be necessary for the church to make this determination.
A good starting point for information is the GuideStone website. Churches will find information at www.guidestone.org under the insurance tab and the link to healthcare reform. The direct link to the information mentioned in this article is http://www.guidestoneinsurance.org/HealthcareReform2/ReimbursementVehicles.