Skip to main content

More on Health Insurance and Section 125 Plans

By
Question:

 This is a follow-up on the posting of December 16 regarding health insurance:

 Must a health insurance policy be held by the organization in order to qualify health insurance premium payroll deductions for tax-free treatment under a Section 125 cafeteria plan? or can the employee hold the policy?

 Also, must the employer pay at least a portion of the premium, or can the full amount be withheld through payroll deduction?

 Answer:

 I'll give this question "my best shot" -- employee benefit plans are not my forte. Further, there may be some insurance industry regulations or requirements of individual insurance firms that can affect this issue (e.g., I believe that Golden Rule Insurance here in Wisconsin does not permit a church to own (or even reimburse premiums) the policy).

 Having said this, I do not believe that the Code stipulates the owner of the insurance plan nor requires partial payment by the employer. However, before a church and its pastor jumps into such as arrangement, its leadership is well-advised to clearly understand and communicate the specific requirements of Section 125 -- especially its use-or-lose-it component.
Labels:

Comments

  1. AnonymousDecember 24, 2008 at 12:49 PM

    Premiums for either a group policy or an individual policy can be eligible under a cafeteria plan, however they are different accounts.

    The most basic would a premium only plan (also known as a POP) where the employee's portion of the premium is automatically payroll deducted and the organization pays the premium on the employee's behalf.

    In the case of the individual plan, the employee would have to submit documentation to show that they have paid their individual premium.

    Concerning the insurance companies - I do not believe they care whether a premium is deducted pre-tax or post tax as long as the premium is paid.

    The issue you really need to be concerned about is whether the pre-tax reimbursement is eligible or not. I hope that helps.

    ReplyDelete

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns 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 a...
Post a Comment
Read more

How can my ministry expenses be covered by the church?

By
     How can my ministry expenses be covered?                            Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are in...
Post a Comment
Read more

Debits and Credits for Designated Gifts

By
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: We recommend that most churches that do not need to present financial statements in accordance with Generally Accepted Accounting Principles (GAAP) 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 we 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 subsequ...
12 comments
Read more