JEFFERSON CITY – A recent announcement from the IRS may help ministers around the state save on their taxes, according to Missouri Baptist Convention (MBC) Human Resources and Guidestone specialist Gene Foster.
According to Foster, this IRS announcement made clear that ministers—and other taxpayers—who have individual medical plans and who have reported their healthcare premiums as taxable income for 2014 no longer need to do so.
“For some guys, that is $13,000 or $14,000 of income that just disappeared off of the tax bill; in some cases, that is $3,000, $4,000, or $5,000 in taxes. That is good news for 2014,” said Foster, who encourages ministers to change their 2014 W-2 forms accordingly. (For more information, see the second IRS guideline listed in the “Details concerning IRS guidelines” section below.)
Foster added that, beginning on July 1, 2015, ministers with individual healthcare plans will be required to report their premiums as taxable once again.
Details concerning IRS guidelines
The IRS on February 18 issued this guidance regarding certain employers maintaining employer payment plans (EPPs) that reimburse for individual health care coverage. In this notice, the IRS clarified guidance on the one-employee health plan exception from the market reform provisions of the Affordable Care Act (ACA) and reimbursement arrangements for Medicare and TRICARE.
Because these rules are effective retroactively, and may create confusion among some tax preparers, GuideStone is making available an online alert that explains this notice at www.guidestoneinsurance.org/EPPGuidance.
Prior to this notice, some organizations could have been subject to penalties up to $36,500 per year, per participant, per ACA violation. Penalties will not be assessed for pretax reimbursements through June 30, 2015.
The IRS notice does not impact participants in GuideStone’s health plans, including the Personal Plans, as all GuideStone coverage is considered group coverage for purposes of federal law, even if paid via an EPP or HRA.
The IRS guidance includes the following main guidelines for employers:
1. The government has given a grace period from January 1, 2014, to June 30, 2015, for the $100 per day, per participant penalties, for employers who are not applicable large employers if you continued to reimburse individuals for individually purchased health insurance after January 1, 2014, whether reimbursed pretax or after-tax. By July 1, employers will have to ensure they comply with this notice.
2. Employers who paid premiums for individual reimbursement arrangements on a post-tax basis, thinking they were in compliance with the ACA, may amend their employees’ W-2 forms and treat the reimbursement as non-taxable for 2014. Employees who have already filed their 2014 tax return can file amended tax returns, which may reduce the tax liability for employees affected by this change.
3. The 2015 notice confirms that an employer may increase an employee’s compensation to assist with payments of individual insurance policy premiums and, as long as the payment of additional compensation is not conditioned on the purchase of health coverage, all ACA penalty issues are avoided.
4. An employer with more than one employee (including part-time employees) can avoid ACA penalties if only one employee is reimbursed for health insurance premiums, but it will depend on the employer’s facts and circumstances as to whether the reimbursement can be made pretax.
The IRS notice also addresses both Medicare Premium Reimbursement Arrangements and TRICARE-related health reimbursement arrangements.
Because GuideStone does not offer specific tax or legal advice, it is recommended that employers and employees with these kinds of EPP arrangements consult with their own legal and accounting advisors to determine how to be compliant when June 30 arrives.
For questions about these new IRS guidelines, Missouri Baptist ministers may contact Foster at 573.636.0400, ext. 334, or at gfoster@mobaptist.org.