On July 1, 2015 the Affordable Care Act rules officially change for many churches. Tax advisors are warning churches who previously provided health insurance reimbursement as part of a salary “package” that it is now against the law. Unless your church employees are on a group plan or pay only one employee, an employer is not permitted to reimburse individual health care insurance premiums on either a pre- or post-tax basis. If your church continues to do this, the church is required to pay a fine of $100 per day per employee.
If the church “reimburses” all or a part of an individual health insurance premium, or pays into a Health Reimbursement Account (HRA), it is subject to the fine. But if the church simply gives employees a raise, there is no fine. The raise must NOT be contingent upon the employee carrying any particular insurance. It is up to the employee what is done with the raise. If it is simpy a raise, the church is operating legally and not subject to fines. Remember that all people in the United States are now required to carry health insurance or they are individually subject to fines. Tax advisors encourage all churches to give raises, and all pastors to find health insurance — whether on the government’s Marketplace or through local insurance agents.
In summary, if your church has no group insurance plan and provides reimbursement for individual premiums or medical expenses whether before or after tax: STOP IT. Instead advisors recommend churches give employees a raise. To make it clear that the raise is not tied to health reimbursement most tax advisors recommend that you make the raise larger than what the church would otherwise pay (even by a dollar). Do not make the raise the exact amount that was previously reimbursed.
Contact your church financial advisor, insurer or local tax office for more information.