Skip to main content

What do we do about rising health care costs?

Question:

What ideas can a church consider to control its rising health care costs?

Answer:

Many ministers and their employers are looking for alternative plans to control rising health care costs without neglecting those in need of medical services. Because of the Affordable Care Act (ACA) requirements, many churches have reconsidered the medical benefits it offers to employees. If the church employs a single employee—a solo minister, the ACA has one set of requirements. Generally, there is more flexibility when there is only one employee. But for churches with two or more employees who participate in medical benefits, the ACA has stringent requirements.

We suggest that you consult your tax professional when offering medical benefits. The benefits the church offers may very well be 100 percent taxable to the employee.

For example, be aware that if a church covers the monthly share costs of an employee for a health-sharing plan (e.g., Samaritan Ministries International, Medi-Share, or Christian Healthcare Ministries), the amount paid by the church is subject to income tax for all employees and to FICA tax for all non-minister employees. Many health care benefits also disqualify church employees from receiving premium tax credits on the healthcare.gov Exchange.

Churches are considering several alternative options. One in particular is an HDHP tied to an HSA. By offering a High Deductible Health Plan (HDHP), the employees of the ministry may also be eligible for a Health Savings Account (HSA). The HSA benefit funds a bank account that the employee can use for qualified medical expenses. Any unused balance at the end of the year carries forward into the next year.

There are many forms of Health Reimbursement Arrangements (HRA) that are beyond the scope of this blog post. They include: Individual Coverage HRAs (ICHRA), Excepted Benefits HRAs, Qualified Small Employers HRAs (QSEHRA), and Flexible Spending Accounts (FSAs). Unfortunately, FSAs are "use it or lose it" benefits which are lost if the funds are not spent by year end.



Comments

Popular posts from this blog

Housing Allowance and Form 1099-MISC Reporting

Question:A church provides its minister a housing allowance but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister. (Starting in 2020, Form 1099-MISC is replaced with Form 1099-NEC for non-employee compensation.)If the church reports his compensation, including the housing allowance, on the Form 1099-NEC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040?Answer:This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2, not as independent contractors who receive Form 1099-NEC. Box 1 on Form W-2 reports taxable compensation. It is reduced to reflect the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowance c…

Debits and Credits for Designated Gifts

Question:

A church is setting up Quickbooks for its accounting, but its personnel have little experience with fund accounting. What are the entries for the receipt and disbursement of designated gifts and the opening balances?

Answer:

I recommend that most churches that do not need to present financial statements in accordance with Generally Accepted Accounting Principles observe the following steps. Even those churches that do report using GAAP can employ these methods, but must make some adjustments when preparing their financial statements.

What I will demonstrate relates to what most churches call "designated gifts" (CPAs call these Temporarily Restricted gifts). These are gifts that donors contribute with the intention that the church will spend the funds as they direct. Most churches do not receive "endowment gifts" in which donors prohibit the expenditure of the core gift (CPAs call these Permanently Restricted gifts). Only earnings on the subsequent investments…

Rental of a Church Parsonage to a Non-minister

Question:

A church owns a parsonage, but the pastor does not use it as he own his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church?

Answer:

Whether the money is used for church purposes is irrelevant. IRS Publication 598 states:

"If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business."

Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.

However, a second concern not addressed …