INDIANAPOLIS – Beginning in 2014, churches will no longer be able to reimburse Individual Health Plan premiums via Section 125 or Health Reimbursement Account (HRA) arrangements.
According to Katy Stowers, Advisor and General Counsel for First Person Benefit Advisors, “Recent IRS guidance (Notice 2013-54) makes clear that an employer is no longer permitted to reimburse individual insurance premiums (either on the Marketplace or in the traditional private market) on a tax-free basis through a Section 125 plan.
“In addition, where some employers previously made HRAs available to employees to reimburse health insurance premiums on a nontaxable basis, we now know this is no longer permitted except in the retiree-only plan context. Even then, if an individual has access to retiree-only HRA reimbursements for health insurance premiums, he or she will not be eligible for premium tax credits/subsidies in the public Marketplace.”
From time to time, churches have discussed with Indiana Conference leaders various arrangements where they are reimbursing pastors and lay staff for individual, private health plans via tax-free arrangements. In these arrangements, the individual is purchasing a private plan from an insurance company or broker and the church is reimbursing the premium or paying the premium directly.
In addition, the church is providing this reimbursement without including the value on the person’s W2 or is withholding the funds from the salary of the employee on a pre-tax or tax-free basis. This will no longer be permitted starting January 1, 2014.
Only employer-provided, group health plans (like the Indiana Conference HealthFlex program) will qualify for such treatment after 2013.
Stowers goes on to say that it seems that the government is “…very committed to the idea that employers must sponsor major medical coverage to receive any tax benefits for providing assistance with health care costs.”
For further information, see IRS Notice 2013-54 (www.irs.gov/pub/irs-drop/n-13-54.pdf) or consult your benefits advisor.