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The Internal Revenue Service (IRS) says small employers, such as churches, have until June 30 of this year to comply with Affordable Care Act (ACA) health insurance rules without penalty. Last month, the IRS issued transition relief from excise tax penalties under the ACA for certain small employers (those with fewer than 50 full-time equivalent employees) for violations of the ACA “Market Reforms.” The rules included a prohibition on reimbursing individuals for health insurance payments. Such reimbursements have been a common practice by many churches.

Late in 2013, the IRS had declared that health care reimbursement arrangements, even though they were blessed in a 1961 Revenue Ruling, would not work for the most part with the ACA Market Reforms as of January 1, 2014.

The transition relief announced by the IRS frees small employers, such as churches, from the excise tax penalties ($100 per day, per employee) for non-compliance through June 30, 2015.

“This is good news for churches that had continued to reimburse pastors for health insurance after January 1, 2014,” says Don Walter, Pensions and Benefits USA director. “Churches could have been hard hit with fines without this reprieve. It is now critical for them to come into compliance by June 30 to avoid penalties.” He added that fines for non-compliance after June 30 will be retroactive to January 1, 2014.

The level of interest in this topic was reflected in a recent webinar presented by the Evangelical Council for Financial Accountability (ECFA). More than 1,500 individuals and groups pre-registered for this webinar—the highest number for any ECFA webinar to date. The session was led by ECFA President Dan Busby, and featured Danny Miller and Allison Gardner of the law firm of Conner & Winters LLP.

Ministers and church treasurers are encouraged to view this free webinar by registering for an account at the ECFA website. An informational handout created to accompany the webinar is available.

Walter added, “After participating in the webinar, our staff believes ‘Road 3,’ as outlined in the handout, appears to be a good policy to adopt. If it is implemented by June 30, 2015, a church concerned that ACA excise tax penalties may apply, may not need to file IRS Form 8928 as instructed in the webinar. It is important to note that the recent announcement by the IRS pertains only to relief from the ACA excise tax.”

Please note: Pensions and Benefits USA is not permitted to offer legal or tax “advice.” We do, however, provide general tax information to churches and ministers in the Church of the Nazarene. Additional tax-related information is available under the Resources tab at pbusa.org. Important tax questions should be discussed with a qualified tax advisor to be sure all tax liability is met.

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