The General Board of Pension and Health Benefits has issued guidance for churches concerning the tax consequences of payments for medical coverage for employees that are not part of an employer group plan. Effective January 1, 2014, direct reimbursement or payments made directly to an insurance or medical care provider for an individual health insurance policy are considered taxable and should be included as taxable income on the employee’s W-2. Payments made for group plan premiums on the conference plan do not have to be included in taxable wages. Please call us in the Treasurer’s Office with any questions on this change.<\/p>\n
From the GBOPHB:
\nRE: Important Information on Employer Payment Plans for Medical Coverage<\/p>\n
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 January 1, 2014, 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 \u201cissuer\u201d) or through the Affordable Care Act\u2019s 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 employee\u2019s taxable income. These arrangements are sometimes called \u201cEmployer Payment Plans\u201d [EPPs] or stand-alone health reimbursement arrangements (HRAs).<\/p>\n
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 employee\u2014if 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:
\n\u2022 No contributions are made by the employer, i.e., the payment is part of the employee\u2019s taxable salary that is being forwarded by the employer to the insurance issuer.
\n\u2022 Participation in the program is completely voluntary for employees.
\n\u2022 The employer collects premiums through payroll deduction and remits them to the insurer without endorsing the program.
\n\u2022 The employer receives no consideration (e.g., cash) other than reasonable compensation for administrative services rendered to collect the premiums.
\nIn frequently asked questions (ACA FAQ XXII) recently published by the IRS (along with the DOL and the Department of Health and Human Services), the government agencies made clear that employers could also violate the ACA by reimbursing employees for premiums employees paid to the issuer with dollars reported as taxable income. These taxable reimbursement arrangements would be considered employer group health plans and would also be prohibited under the ACA as violating the prohibition on annual dollar limits in a health plan. This latest guidance means that the only way employers can assist their employees in paying for individual health insurance policies is through increased salaries or the above-described safe harbor salary-forwarding type arrangement.<\/p>\n
Local churches that rely on Employer Payments Plans to cover lay employees, deacons or part-time clergy should terminate those plans immediately. Continuing these plans risks Affordable Care Act (ACA) excise tax penalties to the local church, namely a penalty under Section 4980D of the Tax Code that levies a penalty of $100 per day per affected employee on the employer (e.g., the local church). This can amount to $36,500 annually per employee. Moreover, these arrangements, even if prohibited, would be considered \u201cminimum essential coverage\u201d under the ACA, and the local church would be required to submit year-end information reporting forms (Forms 1095-B) to the IRS related to the coverage for each employee. Failure to report minimum essential coverage (no matter how small an employer\/plan sponsor is) can result in significant additional penalties to the employer.<\/p>\n
Local churches that wish to continue providing financial assistance to help employees purchase individual health plans or policies through the ACA Marketplace or the private market still have a few options:<\/p>\n
1. A local church can increase the employee\u2019s taxable wages based upon the premiums the employee is paying for individual health insurance or medical expenses incurred. This option also increases the employee\u2019s taxes and the church\u2019s payroll (FICA) taxes.<\/p>\n
2. A local church can establish a payroll practice of forwarding post-tax employee wages to a health insurance issuer at the direction of an employee, if the practice meets the following criteria:
\n\u2022 No contributions are made by an employer.
\n\u2022 Participation in the program is completely voluntary for employees.
\n\u2022 The employer collects premiums through payroll deduction and remits them to the insurer without endorsing the program.
\n\u2022 The employer receives no consideration (e.g., cash) other than reasonable compensation for administrative services rendered to collect the premiums.
\n3. A local church can adopt plans through the Small Business Health Options Program (SHOP) Marketplace for employees and provide a tax-free contribution toward coverage.<\/p>\n
In addition, there are new restrictions on health flexible spending accounts (FSAs). Employees at local churches should not be provided a health FSA unless they have also been offered access to an employer group health plan, e.g., a small group market plan, SHOP plan or an annual conference plan that is sponsored, adopted or \u201cparticipated in\u201d by the local church.<\/p>\n
Employers also can offer tax-free excepted benefits (such as employee assistance programs, dental and vision plans) to employees. Employers also can use deferred compensation arrangements [e.g., 403(b) plans, etc.] as a complementary approach to relying on the ACA Marketplaces.<\/p>\n
If you have any questions, please contact the annual conference benefits office.<\/p>\n","protected":false},"excerpt":{"rendered":"
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