June 30, 2015 is the last day to avoid penalties for non-compliance with the Affordable Care Act healthcare reimbursement regulations. Since the Affordable Care Act (ACA) was enacted in March 2010 much has changed in health care. For most churches, as an employer, the implications of the law were less obvious until this year when the IRS issued Notice 2015-17 which contained new guidance about health coverage reimbursement arrangements. One of the provisions of the notice provided transitional relief for penalties for ACA noncompliance until June 30, 2015. Penalties (excise taxes) for ACA violations can be quite steep – as much as $100 per day per person ($36,500 annually per person).Information on this topic has been provided previously but a review and update is in order since the implications of non-compliance are so high. Click here to read previous information.
What is acceptable now for churches with less than 50 full-time equivalent employees?
- Churches that offer health insurance benefits through a group health insurance plan are compliant (and can be provided tax-free).
- Churches with one employee (no part-time staff) can continue to reimburse or pay insurance premiums directly (subject to documentation) on a tax-free basis. No violations, no penalties.
- Churches that provide health insurance to one employee but not others are compliant but must satisfy discrimination rules for the benefits to be provided tax-free.If discrimination rules are not met, the benefits are considered taxable income. Discrimination pertains to providing different kinds of health benefits to different classes of employees (e.g. senior pastor vs assistant pastors; pastor vs. administrative staff). There is a discrimination safe harbor rule that excludes part-time employees working less than 25 hours when determining discrimination. Discrimination rules are complex and are on the IRS' docket to be updated. Given the trajectory of these rules, where appropriate, discrimination should be done with cash compensation and not employee benefits.
- Employees on a spouse's plan can be considered ACA compliant and be treated tax-free if the employee is the only employee of the church. There is an exception allowing tax free treatment of spousal premiums if the church has a group health plan and a health reimbursement arrangement. Otherwise, payments should be included in gross pay without preferencing how the payments is to be spent (i.e. gross up the base pay).
The General Treasurer's Office will be conducting two free live webinars to discuss the topic with interested persons on Tuesday, June 9th. The webinar format will include a brief summary and will be primarily devoted to questions. The first webinar is scheduled from 1-2PM EST. Click here to register. The second webinar is scheduled from 7-8PM EST. Click here to register.
The Evangelical Council for Financial Accountability (ECFA) put together a very helpful e-book with more detailed information entitled "5 Roads for Healthcare Reimbursements by Churches and Ministries." The e-book references Health Care Sharing Ministries (the 5th road) and concludes with a 16 question FAQ. Click here to view.
GuideStone Financial Resources has provided another excellent resource "Reimbursement Vehicles and the ACA: Impacts for Employers. Click here to view.
More Fun!New ACA employer information reporting requirements have been finalized for 2015 (with reporting due at the beginning of 2016). Look for more information on this topic in July.
If you have any questions, contact Kevin Batman at firstname.lastname@example.org or call (317)774-3941.