The Complete Guide to Reimbursing Pastors for Health Insurance

Discover how a church can reimburse a pastor for health insurance legally, including HRAs, ACA compliance, and more in our comprehensive guide.

Can a church reimburse a pastor for health insurance? The quick answer is yes, churches can indeed offer health insurance as part of a pastor’s compensation package. Here’s a quick rundown to address your search intent straight away:

  • Legality: It’s legal for churches to reimburse or pay directly for a pastor’s health insurance.
  • Methods: Churches can do this through informal stipends, health reimbursement arrangements (HRAs), or by including it in a compensation package.
  • Considerations: Tax implications and benefits vary between options, with HRAs often providing the most tax-efficient solution.

When health insurance is a critical concern for everyone, pastors stand in a unique position. Many pastors serve smaller congregations or are part of religious organizations that don’t have the vast resources of larger corporate entities. This brings about the question of how pastors can secure health insurance in a manner that’s both legal and beneficial for them and for the church they serve.

This introduction will explore the pathways available for churches wishing to assist their pastors with health insurance, emphasizing the critical role of the church, the needs of the pastor, and the legality of reimbursement or direct payment methods. From navigating the complexities of health reimbursement arrangements (HRAs) to understanding tax implications and eligibility, we’ll provide a comprehensive guide to ensuring pastors are supported in their health care needs in a manner compliant with regulations.

Infographic detailing the steps a church can take to legally reimburse a pastor for health insurance, highlighting HRAs, stipends, and direct payment options along with their respective tax implications - can a church reimburse a pastor for health insurance infographic pillar-3-steps

With the right approach, churches can provide pastors with much-needed health insurance support, reflecting the community’s care and recognition of their vital spiritual role.

Understanding Health Reimbursement Arrangements (HRAs)

When a church wonders, “can a church reimburse a pastor for health insurance?”, HRAs present a compelling answer. Let’s dive into what HRAs are, their tax-free benefits, and how they fit into individual plans and group coverage.

HRAs Explained

HRAs, or Health Reimbursement Arrangements, are employer-funded plans that reimburse employees for medical expenses, including health insurance premiums. This setup is particularly attractive because it offers tax-free reimbursements, making it a cost-effective solution for both the church and the pastor.

Tax-Free Benefits

One of the most appealing aspects of HRAs is the tax advantage. When a church reimburses a pastor for health insurance through an HRA, those payments are not considered taxable income for the pastor. This means pastors can receive health benefits without the burden of additional taxes, and churches can support their pastor’s health needs in a financially efficient manner.

Individual Plans vs. Group Coverage

HRAs are versatile and can be tailored to different needs, which is crucial for churches with varying sizes and budgets.

  • Individual Plans: For churches with a single pastor or a small staff, HRAs can reimburse premiums for individual health insurance plans. This flexibility allows pastors to choose a plan that best suits their needs and family situation.

  • Group Coverage: Larger churches might opt for group health insurance plans. In these cases, HRAs can still play a role by reimbursing out-of-pocket medical expenses not covered by the group plan. This dual approach ensures comprehensive coverage for all employees.

Implementing HRAs

There are two main types of HRAs to consider:

  1. ICHRA (Individual Coverage HRA): Suitable for churches of any size, ICHRAs can reimburse premiums for individual health insurance plans. There’s no limit on how much a church can reimburse, offering significant flexibility.

  2. QSEHRA (Qualified Small Employer HRA): Designed for small churches with fewer than 50 employees, QSEHRAs have annual contribution limits but still provide a tax-advantaged way to reimburse health costs.

Choosing between an ICHRA and a QSEHRA depends on the church’s size, budget, and specific needs of its employees. Both options, however, offer a pathway for churches to support their pastors and staff in a meaningful and tax-efficient manner.

With the understanding of HRAs, churches can navigate the complexities of health insurance reimbursement with confidence. The tax advantages and flexibility of HRAs make them a valuable tool in ensuring pastors are supported in their healthcare needs. As we move into the next section, we’ll explore the legal considerations churches must keep in mind when providing health benefits.

Legal Considerations for Churches

When a church decides to reimburse a pastor for health insurance, there are several legal considerations to keep in mind, including ACA compliance, the employer mandate, tax implications, and whether to use 1099 or W-2 forms. Let’s dive into each of these areas to ensure your church stays on the right side of the law.

ACA Compliance

First up, the Affordable Care Act (ACA). It’s important that churches understand ACA rules to ensure they don’t face penalties. Churches are not exempt from the ACA, meaning they must offer health coverage that meets ACA standards if they have 50 or more full-time employees. For smaller churches, this isn’t a concern, but staying informed is always wise.

Employer Mandate

Linked closely to ACA compliance is the employer mandate. This rule requires employers with at least 50 full-time employees to provide health insurance. If your church doesn’t meet this size, the mandate doesn’t apply, but it’s critical to be aware of your church’s growth and how it might change your obligations.

Tax Implications

Now, let’s talk taxes. This is where things get a bit tricky. When a church reimburses a pastor for health insurance, it can do so through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or an Individual Coverage HRA (ICHRA). These arrangements allow reimbursements to be tax-free for both the church and the pastor. However, without these arrangements, reimbursements could be considered taxable income for the pastor. The goal is to maximize benefits while minimizing tax liabilities.

1099 or W-2 Forms

Finally, whether to report health insurance reimbursement on 1099 or W-2 forms depends on the pastor’s employment status. If the pastor is an employee of the church, then any health insurance reimbursement should be reported on a W-2 form. However, if the pastor is considered an independent contractor, then a 1099 form would be more appropriate. Most pastors are considered employees, so W-2 is the usual route.

In Summary

  • ACA Compliance: Ensure your church’s health benefits meet ACA standards.
  • Employer Mandate: Know if your church is big enough to be affected.
  • Tax Implications: Use HRAs to provide tax-free reimbursements.
  • 1099 or W-2: Report reimbursements correctly based on the pastor’s employment status.

Understanding these legal aspects is crucial for any church planning to reimburse a pastor for health insurance. It’s not just about doing right by your pastor; it’s also about ensuring compliance with the law. Churches should consider seeking professional advice to navigate these waters smoothly.

It’s clear that understanding the legal framework is just the beginning. Implementing a health reimbursement arrangement effectively requires careful planning and consideration of employee eligibility and the coverage offered. Let’s explore how to put these plans into action in the next section.

Options for Health Insurance Coverage

When it comes to providing health insurance for pastors, churches have several paths they can explore. Each option has its unique features, benefits, and considerations. Let’s dive into the available choices: Group health insurance, Individual health insurance, Health Sharing Ministries, Medicaid, and coverage through a Spouse’s Employer.

Group Health Insurance

This traditional route involves the church purchasing a policy that covers all eligible employees, including the pastor. While it offers comprehensive coverage, it can be costly, especially for smaller congregations. Also, some policies require a minimum number of participants, which might not be feasible for churches with a limited staff.

Individual Health Insurance

Pastors can buy their own health insurance policy through the marketplace established by the Affordable Care Act (ACA). This option provides flexibility, allowing pastors to choose a plan that best suits their needs. Churches can support their pastors by reimbursing them for their premiums through a Health Reimbursement Arrangement (HRA), like an ICHRA or QSEHRA. This approach is tax-efficient and offers pastors a wide range of choices.

Health Sharing Ministries

These are not traditional insurance but a way for like-minded individuals (often within the same faith community) to share healthcare costs. Participants contribute a set amount each month, which is then used to pay for members’ medical expenses. While this can be a cost-effective solution, it’s important to note that these ministries might not cover all health services and lack the regulatory oversight of traditional insurance.


If a pastor’s income is below a certain threshold, they may qualify for Medicaid, a state and federally funded program providing health coverage to low-income individuals and families. This option can offer comprehensive coverage at little to no cost for eligible pastors. However, eligibility varies by state and depends on income and family size.

Spouse’s Employer

If a pastor’s spouse is employed and has access to a group health insurance plan, this can be an excellent option for coverage. These plans are often subsidized by the employer, making them a cost-effective way for pastors to receive benefits. Plus, group plans usually offer comprehensive coverage.

As we have seen, churches and pastors have multiple avenues for securing health insurance coverage. The best choice depends on the church’s financial situation, the pastor’s personal and family health needs, and the legal and tax implications of each option. Understanding these options is crucial in making informed decisions that ensure pastors are well-supported and covered.

Moving forward, we’ll delve into the intricacies of implementing a health reimbursement arrangement, a key strategy for churches to support their pastors’ health insurance needs efficiently and effectively.

Implementing a Health Reimbursement Arrangement

Implementing a Health Reimbursement Arrangement (HRA) for pastors can seem like a daunting task, but it’s a straightforward process once you understand the basics. Let’s break it down into simpler terms.

ICHRA: Individual Coverage HRA

The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a flexible way for churches of any size to reimburse pastors and other employees for their health insurance premiums and medical expenses, tax-free. Here’s how it works:

  1. Set a Budget: The church decides on a fixed monthly allowance for each pastor or employee.
  2. Employee Buys Health Insurance: Pastors purchase their individual health insurance plan.
  3. Submit Proof: Pastors submit proof of their expenses.
  4. Get Reimbursed: The church reimburses them up to the allowance limit.

This approach is great because it allows pastors to choose the plan that best fits their needs and family situation.

QSEHRA: Qualified Small Employer HRA

For churches with fewer than 50 full-time employees, the Qualified Small Employer HRA (QSEHRA) is ideal. It operates similarly to ICHRA but is specifically designed for small employers. The steps for setting up a QSEHRA are the same as ICHRA, ensuring that reimbursements are tax-free as long as they stay within the IRS’s annual limits.

Defined Contribution

Think of defined contribution as giving pastors a “healthcare stipend.” Instead of providing a one-size-fits-all group health plan, churches can allocate a specific amount of money each month. Pastors can then use this money to purchase their own insurance or cover healthcare costs. This method offers flexibility and control over healthcare spending.

Employee Eligibility

For pastors to be eligible for HRA benefits, they simply need to be considered employees of the church. This means they receive a W-2 form from the church. Pastors who are considered self-employed or receive a 1099 form may not be eligible.

Minimum Essential Coverage

To receive reimbursements tax-free under an ICHRA, pastors must have health insurance coverage that meets the Affordable Care Act’s (ACA) Minimum Essential Coverage (MEC) requirements. This ensures that the health plan they choose provides a standard level of coverage, including preventive services, emergency services, and more.

Implementing an HRA can be a win-win for both churches and pastors. Churches can manage healthcare costs more predictably, while pastors get the flexibility to choose health insurance that suits their needs. Consulting with a tax professional or benefits advisor can help navigate the setup process smoothly and ensure compliance with all legal requirements. This way, the question of “can a church reimburse a pastor for health insurance” is not just answered; it’s implemented effectively.

Frequently Asked Questions about Reimbursing Pastors for Health Insurance

Can a church pay for the pastor’s medical expenses?

Yes, a church can indeed reimburse a pastor for their health insurance. This is often done through a Health Reimbursement Arrangement (HRA). HRAs are flexible and tax-free, allowing pastors to choose health insurance that fits their needs while the church supports them financially. It’s a great way for churches to help pastors without the high costs of traditional group health insurance plans.

Are churches exempt from ACA?

Churches, like other small employers with fewer than 50 full-time equivalent employees, are not required to provide health insurance under the Affordable Care Act (ACA). However, if they choose to offer health benefits, HRAs provide a compliant way to do so. For larger churches that are considered applicable large employers (ALEs), providing health insurance becomes a requirement under the ACA, and they must navigate the employer mandate carefully to avoid penalties.

What is individual coverage health reimbursement arrangement?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of HRA that allows employers, including churches, to reimburse employees for their health insurance premiums and medical expenses tax-free. This arrangement is flexible and can be used by churches of any size. It’s especially beneficial for churches because it offers a way to support pastors’ health insurance needs without the complexity and expense of a traditional group plan. ICHRAs can cover a wide range of medical expenses and are customizable to fit the needs of both the church and the pastor.

With these questions addressed, it’s clear that churches have viable options to support their pastors’ health insurance needs while staying compliant with legal requirements. Whether through HRAs or understanding exemption statuses under the ACA, churches can find ways to provide for their pastors. Moving forward, it’s essential for churches to consider the benefits and flexibility HRAs offer, ensuring pastors receive the support they need to lead their congregations effectively.


In wrapping up our comprehensive guide on the question, “can a church reimburse a pastor for health insurance,” we’ve delved into the intricacies of Health Reimbursement Arrangements (HRAs) and the legal landscape surrounding them. Now, let’s highlight the key takeaways regarding the benefits of HRAs, the predictability of costs, and how Prestizia Insurance can support your church in navigating these waters.

Benefits of HRAs

HRAs offer a flexible and tax-efficient way for churches to support their pastors and staff with health insurance needs. This approach allows pastors to choose plans that best fit their unique health requirements and family situations, fostering a sense of empowerment and satisfaction. Moreover, HRAs can cover a wide range of medical expenses, providing comprehensive support beyond mere insurance premiums.

Predictable Costs

One of the standout features of HRAs is the predictability they bring to a church’s budgeting for health benefits. By defining the contribution amounts upfront, churches can control their expenses effectively. There’s no need to pre-fund accounts or worry about fluctuating insurance premiums. Plus, any unused funds remain with the church, ensuring resources are utilized efficiently and responsibly.

Prestizia Insurance

At Prestizia Insurance, we understand the unique challenges and responsibilities churches face in providing health insurance to their pastors and employees. Our expertise in church insurance solutions allows us to guide you through selecting and implementing the right HRA for your organization. We’re here to simplify the process, ensuring you can offer meaningful benefits without the administrative headache.

We believe in the power of informed decisions and compassionate care for those who serve our communities. By partnering with us, your church can confidently navigate the complexities of health insurance reimbursement, staying true to your mission of care and support. Let’s work together to create a healthier, more secure future for your ministry team.

In conclusion, HRAs present a viable, flexible, and cost-effective solution for churches seeking to reimburse their pastors for health insurance. With careful planning and the right partnership, your church can provide valuable health benefits while managing costs predictably. Discover how Prestizia Insurance can help your church navigate these decisions, ensuring you’re equipped to support your pastor and staff in health and wellness.

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