A publication by the Evangelical Council for Financial Accountability addresses the current status of health insurance reimbursement guidance, summarizing what churches need to know, updated March 9, 2015. IMPORTANT NOTE: Recent IRS guidance has identified an exception for one-participant plans. See the booklet for this development. Download the booklet here.
"For decades, it has been the common practice of many smaller churches and ministries that are unable to offer group health insurance coverage to assist employees with the cost of their individual health insurance coverage (see page 3) and/or other out-of-pocket medical expenses (see page 4). Employers would pay these costs directly on behalf of employees or provide employees with reimbursements after incurring the expenses. If certain formalities were followed, generally these arrangements were blessed by the IRS and even allowed on a tax-free basis for employees.
That all changed recently as the result of the issuance of certain guidance relating to the ACA market reforms. When the ACA guidance was initially issued related to reimbursements, it was clear that the tax-free reimbursement of individual healthcare insurance premiums would trigger an excise tax of $100 per employee, per day. However, many people interpreted the initial guidance as permitting the employer to avoid ACA excise tax problems if they reimbursed the individual healthcare insurance premiums on a post-tax basis.
A year later, the government issued additional guidance3 clarifying (changing its position) that an employer is not permitted to reimburse individual healthcare insurance premiums on either a pre- or post-tax basis. That means employers who adjusted their practices to align with the initial guidance by paying after-tax reimbursements may have incurred excise tax liability and should discontinue these payments or reimbursements on either a pre- or post-tax basis."