ACA and Church W-2s

[RitaB]

Church has five part time employees (fewer than 30 hours a week) and pastor (more than 30 hours a week). Church pays pastor's health insurance premiums (church pays the insurance company directly), but no one else's. My understanding is that the premiums paid for pastor's health insurance are not taxable to pastor (no change from 2013). Do I have that right?

And I can include the premiums in Box 12 of his W-2 with Code DD. Correct?

I suppose I could be asking these questions about any business with fewer than 50 employees, and the answers would be the same, yes?

If I'm in left field, I'm not catching any balls out here, just to be clear.

[Corduroy Frog]

Oh No, Time for Rita!!

Seriously, good to hear from my fellow Tennessean!

Forget anything applicable to the ACA for this Church. With only 5 employees, they are not covered.

The only real problem might be the discrimination of covering the pastor and no one else. And I think so long as they work
under 30 hours per week, the Church is OK. Not because of the Obamacare 30 hours, but because an employer is allowed to
provide insurance for full-time employees and exclude part-time employees.

[ATSMAN]

Church has five part time employees (fewer than 30 hours a week) and pastor (more than 30 hours a week). Church pays pastor's health insurance premiums (church pays the insurance company directly), but no one else's. My understanding is that the premiums paid for pastor's health insurance are not taxable to pastor (no change from 2013). Do I have that right?

And I can include the premiums in Box 12 of his W-2 with Code DD. Correct?

I suppose I could be asking these questions about any business with fewer than 50 employees, and the answers would be the same, yes?

If I'm in left field, I'm not catching any balls out here, just to be clear.

Unless Church is exempt from ERISA rules (it is likely) you may have a discrimination issue if Church is only paying the health insurance of one employee in a group policy! If it is individual policy, there are other issues (like including it in his taxable income).

[RitaB]

Waiting on Church Administrator

Well, I am waiting on church admin to find out if pastor's insurance is part of a group policy or not. I hope my froggy friend is right, but I'm afraid that makes too much sense. Far more likely from what little I understand about ACA that ER has to overspend and get a group policy in order for the EE to avoid a taxable fringe benefit...

I don't think that word affordable means what they think it means. Sigh.

[MAMalody]

As I understand ACA and the payment of only the pastors medical premiums, they would be taxable income to the pastor even though they were paid directly to the insurance companies in question. If my memory serves me correctly, the IRS and Departments of Labor and Health and Human Services addressed this questions directly in IRS Notice 2013-54.

[duanecpa]

similar situation - 12 employees + pastor

Situation: 12 employees with normal federal, state, fica, medicare with holding. pastor who does not have any federal or state income tax withholding nor fica or medicare.

church pays directly the group health insurance plan of the pastor - from this most recent comment, this becomes taxable income to the pastor in 2014 (church does not provide any group health insurance plan for its employees nor the pastor). Assume that the amount paid in 2014 for the pastor's health insurance premiums was $25,000 - add this amount to the pastor's box 1?

Thank you.

[RitaB]

Well

As I understand ACA and the payment of only the pastors medical premiums, they would be taxable income to the pastor even though they were paid directly to the insurance companies in question. If my memory serves me correctly, the IRS and Departments of Labor and Health and Human Services addressed this questions directly in IRS Notice 2013-54.

Well, I looked up Notice 2013-54, and I gotta say, I am not smart enough to understand that notice. I did find somebody at Forbes that chewed it up and spit it out for me: http://www.forbes.com/sites/anthonyn...miums-in-2014/

"Mind you: the tax law didn’t change. It’s the insurance laws that changed."

And I am sitting here with the voices in my head saying, "I can barely keep up with ONE of those..." and then it's just some whimpering.

[duanecpa]

Church cannot provide health insurance to pastor in 2015??

Thank you for the Forbes article - for the transition year of 2014 - since the DOL did not come out with its FAQs until 11/6/2014, it is possible to treat the pastor's church paid health insurance premiums as additional taxable income - does this seem reasonable? But for 11/7/2014 on, the church cannot provide any health insurance for the pastor under any circumstances. If the church does, then the church is subject to the $100 per day fine or the pastor has to repay the church for all group health insurance premiums paid on their behalf from 11/7/2014 forward. Comments? Am I understanding this correctly?

Thank you.

[RitaB]

I'm still on the struggle bus

Thank you for the Forbes article - for the transition year of 2014 - since the DOL did not come out with its FAQs until 11/6/2014, it is possible to treat the pastor's church paid health insurance premiums as additional taxable income - does this seem reasonable? But for 11/7/2014 on, the church cannot provide any health insurance for the pastor under any circumstances. If the church does, then the church is subject to the $100 per day fine or the pastor has to repay the church for all group health insurance premiums paid on their behalf from 11/7/2014 forward. Comments? Am I understanding this correctly?

Thank you.

I don't understand any better than you do. I do think the Forbes guy was too worried about the penalty being imposed on the ER even if the health insurance is classified as wages to the EE.

Here is what a friend on another board said: "I love how they call these wordy, contradictory statements 'guidance.' I did notice this statement in the Forbes article: 'The guidance makes clear that the penalty does not apply to a plan that has only one participating employee.' Now I am not sure which guidance it refers to, but if the church's plan has only one participating employee (the pastor) and only one eligible employee (since everyone else works less than 30 hours per week), does that mean you are okay? I don't know."

And I said, "Exactly. I will look for more 'guidance' and maybe a nice candy bar the size of my head."

[Super Mom]

I had NO idea this was an issue for Pastor's for 2014! I'm glad I have this taxboard!! Thanks everyone!!

[RitaB]

Hahahahaha

I had NO idea this was an issue for Pastor's for 2014! I'm glad I have this taxboard!! Thanks everyone!!

Glad my ignorance finally paid off.

Also glad (and not surprised) that I am not the only one wondering what to do here.

[TaxGuyBill]

If it's a stand-alone church, I don't see any problems. Reimbursing one employee is still allowed. The others are part-time, so I think ERISA allows them to be excluded from being offered insurance.


My concern is if it is part of a group of churches. Would that make the entire group as treated as one employer? If so, they may be offering insurance reimbursements to other employees, which would be a 'group plan', which would be bad.

http://www.law.cornell.edu/uscode/text/26/5000#b_1

[RitaB]

If it's a stand-alone church, I don't see any problems. Reimbursing one employee is still allowed.

But include the reimbursement in pastor's wages (and on the 941)?

When you say "allowed" you mean in regard to the ER penalty of $100 a day, right? Or, do you also mean they can still exclude the reimbursement from his wages?

[TaxGuyBill]

Both. It is allowed for ACA purposes and reimbursements would NOT be subject to tax.

The tax-ability for health coverage has not changed. The changes just determine if the ACA penalty applies. Even if the employer reimbursed multiple employees and was subject to the ACA penalty, it would still be non-taxable to the employee and the reimbursements would be deductible for the employer.

If the business wanted to compensate multiple employees, they would want to avoid the ACA penalty. They would want to STOP "reimbursing" insurance and increase taxable wages (or set up a qualifying group health plan). Of course the taxable wages would be included on the W-2 and 941.

[RitaB]

Yesssss

Both. It is allowed for ACA purposes and reimbursements would NOT be subject to tax.

The tax-ability for health coverage has not changed.

OK, that is how I understood it when I first posted, too. I feel better about being so dumb now. Haha.