Qualified Small Employer Health Reimbursement Arrangements are now an easier and more cost-effective option for the church to reimburse employees for the cost of individual insurance plans on a pre-tax basis.
If you are a small church (less than 50 employees and not subject to ACA coverage requirements) and you do not offer a group health plan to any of your employees, then you can offer a pre-tax contribution for insurance premiums and health expenses to all eligible employees.
What do you need to do to get started with a QSEHRA plan?
- Draft a QSEHRA plan
- Determine your contribution amount
- Prepare a notice for employees regarding coverage
- Provide the notice to all eligible members of your team, and then provide it with new hire paperwork on the first day of work to any new hire
- Require that participating employees provide you with proof of insurance coverage
There are three main rules to follow when setting a contribution amount.
First, the same terms must be offered to each employee. This may mean, for example, that you offer a reimbursement of up to a maximum amount per month. If you offer to pay 50% of premiums for the employee and any dependents, this may result in an employee with a spouse and children receiving more financially than an employee without dependents. This still meets the requirements of the plan because they are receiving a benefit under the same terms—50% of the premium is being paid. What you cannot do is pay 100% of premiums for clergy and 50% for the rest of your staff. The terms of the benefit must be the same for everyone.
Second, you must adhere to set maximum annual benefit caps. The maximum individual amount is $4,950, and maximum for an employee and family contribution is $10,000. The annual maximum must be prorated for employees who are not working a full year, meaning if someone starts mid-year you cannot bump up their monthly contribution amounts to allow them to receive the full yearly amount.
Third, the cost of the QSEHRA benefit must be entirely covered by the church. QSEHRA is not a shared cost between the church and employee. The employee already has the medical expenses, and the purpose of the QSEHRA is to provide church-sponsored reimbursement. Therefore, you cannot reduce the amount of an employee’s pay as a result of them accepting the QSEHRA benefit.
The QSEHRA plan is a great way to offer a benefit to your employees, especially if a group health plan is unaffordable or unfeasible for your church.
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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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