It is surprising that the biggest tax news for 2014 for many of our pastors and church employees is about health care. If the church pays for or reimburses individual health insurance, that payment becomes taxable in 2014.
This will affect many of our churches having one to ten employees. Over the past 10 years, and especially in churches taking the “package approach” or lump sum method of providing compensation, ministers and other staff looked for the best price insurance available. For many, that was an individual policy. Many saw their policy increase in price greatly last fall and now the payment will be taxable.
The basic reasoning for the new tax regulation is that the government assumes that individuals seeking coverage will do so on the government exchange, www.healthcare.gov. The tax credit will be obtained there for those who qualify. So if the employee received a tax credit and the employer paid for the insurance on a tax free basis, the employee would receive a tax benefit twice for the same money.
For those who have GuideStone insurance it is a group plan and is a tax-free benefit (even if there is only one employee at the church). Other churches may have a group plan through another provider and that would still be a tax-free benefit.
For more information, see these links provided by GuideStone. There is additional information about Health Reimbursement Arrangements. If your church has an HRA, read the GuideStone article and have it checked by a qualified professional for compliance with the new regulations.
This link provides information and evidence for the IRS changes to HRA and EPP premium reimbursement for individual health plans. It also explains the only change to the 125 plan (prohibited from reimbursing premium for health coverage purchased through the Exchange). Also there is a description of “why” GuideStone coverage, whether “personal plan” or “group plan” is always considered Group Health Coverage, not “individual” coverage.
Updates to the law are always found here.