A Comprehensive Guide to Church Health Insurance Reimbursement

Learn how can churches reimburse employees for health insurance legally, exploring HRAs, ACA exemptions, and tax implications in our comprehensive guide.

Can Churches Reimburse Employees for Health Insurance? Yes, they can. Here’s a quick rundown:
ICHRA (Individual Coverage HRA): Churches can partially or fully cover health insurance premium costs.
QSEHRA (Qualified Small Employer HRA): For small churches, reimbursing medical expenses up to IRS-defined limits.
EBHRA (Excepted Benefit HRA): Covers additional insurance plans and expenses beyond primary healthcare.

Healthcare is a vital concern for all, including those working for religious organizations. In recent years, laws around health insurance reimbursements by churches have evolved, impacting how these institutions can support their staff. The introduction of the Affordable Care Act (ACA) brought changes that affected the long-standing practice of churches reimbursing health insurance premiums for their employees. However, as of January 1, 2020, new rules have enabled churches to recommence these reimbursements through structures like Individual Coverage Health Reimbursement Arrangements (ICHRA), Qualified Small Employer Health Reimbursement Arrangements (QSEHRA), and Excepted Benefit Health Reimbursement Arrangements (EBHRA).

For a busy professional in Texas or anywhere else, understanding these options is crucial for making informed decisions. This guide aims to simplify the complex topic of church health insurance reimbursement into clear, actionable information. So, whether you’re an employer at a church seeking to provide for your staff or an employee wanting to navigate your benefits, this guide is crafted to answer your principal concerns with clarity and precision.

Infographic detailing the three types of HRAs: ICHRA, which allows for full or partial reimbursement of health insurance premiums; QSEHRA, designed for small employers offering a fixed annual reimbursement; and EBHRA, covering additional benefits beyond primary health plans. The graphic includes eligibility criteria, benefits covered, and maximum allowable reimbursement amounts as defined by IRS guidelines. - can churches reimburse employees for health insurance infographic 3_stage_pyramid

Legal Framework for Church Health Insurance Reimbursement

Navigating the legal waters of health insurance reimbursement for churches can seem like a daunting task. Let’s break it down into simpler terms, focusing on three main areas: ACA requirements, exempt organizations, and IRS regulations.

ACA Requirements

When we talk about health insurance for churches, the Affordable Care Act (ACA) plays a big role. Here’s the deal: if your church has 50 or more full-time employees, it’s considered an applicable large employer (ALE). ALEs must offer minimum essential coverage (MEC) to their employees. Not doing so could lead to hefty penalties, especially if an employee receives a premium tax credit or cost-sharing reduction.

But here’s some good news for smaller churches: if you have fewer than 50 full-time employees, you’re not required to provide health coverage under the ACA. However, offering health benefits is a great way to keep your employees happy and healthy.

Exempt Organizations

Churches fall into a special category when it comes to taxes and regulations. Under Section 501(c)(3) of the Internal Revenue Code, churches are recognized as exempt organizations. This means they’re generally exempt from federal income tax. Plus, they can receive tax-deductible contributions. When it comes to health insurance, this exempts status doesn’t directly change the ACA requirements but it’s important for understanding the broader legal context.

IRS Regulations

The IRS has specific rules about how employers, including churches, can reimburse employees for health insurance. Before 2013, churches could reimburse employees for individual health insurance premiums on a pre-tax basis. However, IRS guidance now requires these reimbursements to be done through formal arrangements like Health Reimbursement Arrangements (HRAs) to avoid tax penalties.

There are two main types of HRAs relevant to churches:
QSEHRA (Qualified Small Employer HRA): For employers with fewer than 50 full-time employees. Allows tax-free reimbursement of medical expenses, including individual health insurance premiums.
ICHRA (Individual Coverage HRA): Available to employers of any size, with no cap on contributions. Employees can use ICHRA funds to purchase individual health insurance.

To stay compliant, churches must ensure their HRAs meet specific criteria, including offering the same contributions to all eligible employees and requiring that employees have minimum essential coverage to receive reimbursements.

In summary, while the legal framework surrounding church health insurance reimbursement can seem complex, it boils down to understanding your church’s obligations under the ACA, leveraging your status as an exempt organization, and following IRS regulations for reimbursing health insurance costs. By focusing on these areas, churches can navigate the legal landscape more confidently, ensuring they provide valuable benefits to their employees while staying compliant with federal laws.

Moving forward, we’ll dive into the specifics of how churches can set up and manage HRAs, ensuring compliance and making the most of this opportunity to support their employees.

Types of Health Reimbursement Arrangements (HRAs)

When it comes to supporting employees with health insurance, churches have three main tools at their disposal: ICHRA, QSEHRA, and EBHRA. Let’s break these down in simple terms to understand how each can be used effectively.

Individual Coverage HRA (ICHRA)

ICHRA stands for Individual Coverage Health Reimbursement Arrangement. It’s a flexible way for churches of any size to help their employees with health insurance costs. Here’s what makes ICHRA special:

  • No limit on contributions: Churches can decide how much they want to reimburse employees for their health insurance premiums.
  • Flexibility: Employees can choose the health insurance plan that best fits their needs and get reimbursed for the premiums.
  • Customizable: Churches can set different reimbursement rates based on age or family size.

This type of HRA is a powerful tool because it gives employees the freedom to pick their insurance while allowing the church to control costs.

Qualified Small Employer HRA (QSEHRA)

QSEHRA is designed for smaller churches, specifically those with fewer than 50 employees. It’s a bit different from ICHRA in a few key ways:

  • Set contribution limits: For 2020, the limit is $5,250 for individuals and $10,600 for families.
  • Simple and predictable: It offers a straightforward way for small churches to help with medical expenses without the complexity of managing a traditional group health plan.
  • Tax advantage: Like ICHRA, reimbursements through a QSEHRA are tax-free for both the church and the employee, as long as the employee has minimum essential coverage.

QSEHRA is ideal for small churches that want to provide health benefits but need to keep things simple and budget-friendly.

Excepted Benefit HRA (EBHRA)

EBHRA is a bit different from the other two. It’s not meant to cover primary health insurance premiums. Instead, it’s designed to help with additional costs. Here are the key points:

  • For extra expenses: EBHRA can cover things like dental and vision care, short-term health insurance premiums, and more.
  • Limited contribution: The maximum contribution is smaller compared to ICHRA and QSEHRA.
  • No primary health plan required: Employees can benefit from EBHRA even if they decline the church’s group health plan.

EBHRA is a great way to complement other health benefits, offering a way to cover additional health-related costs that primary insurance might not cover.


By choosing the right type of HRA, churches can offer meaningful health benefits to their employees, tailored to the church’s size and budget and the employees’ needs. Whether it’s the broad flexibility of an ICHRA, the simplicity of a QSEHRA for small employers, or the supplemental benefits of an EBHRA, each option provides a path for churches to support their employees’ health care needs in a tax-advantaged, compliant way.

Next, we’ll explore the process and considerations for churches looking to reimburse health insurance costs for their employees, ensuring they navigate tax implications and compliance with both federal and state laws effectively.

How Churches Can Legally Reimburse Health Insurance

When churches decide to support their employees’ health care financially, they venture into a territory filled with legal considerations. But don’t worry, the process can be straightforward with the right knowledge. Let’s break it down into reimbursement process, tax implications, and compliance with federal and state laws.

Reimbursement Process

First things first, churches can choose between different types of Health Reimbursement Arrangements (HRAs) based on their size and needs:
ICHRA (Individual Coverage HRA) is suitable for churches of any size. It allows for reimbursement of individual health insurance premiums and medical expenses.
QSEHRA (Qualified Small Employer HRA) is tailored for small churches with fewer than 50 employees, offering a simpler, more streamlined approach.

To start reimbursing, a church must first set up an HRA plan. This involves deciding on the reimbursement limits and what expenses are eligible. Once the plan is in place, employees can submit their health insurance premiums or medical expenses for reimbursement.

Tax Implications

HRAs offer tax benefits both for the church and the employees. For churches, the amounts they reimburse for health insurance are tax-deductible as business expenses. For employees, these reimbursements are tax-free income, provided the HRA complies with IRS rules.

However, it’s crucial to note that if a church opts to increase wages or provide healthcare stipends instead of using an HRA, these amounts are considered taxable income for the employees.

Compliance with Federal and State Laws

Navigating the legal landscape is perhaps the most daunting aspect of offering health insurance reimbursements. Here’s what you need to keep in mind:

  • Affordable Care Act (ACA): Churches with fewer than 50 full-time equivalent employees are not required by the ACA to provide health insurance. However, if they choose to do so through an HRA, they must ensure their plans comply with ACA regulations, such as not imposing annual or lifetime limits on essential health benefits.

  • IRS Regulations: The IRS has specific guidelines for HRAs to ensure they are used appropriately for health care expenses. For instance, after December 31, 2013, churches cannot reimburse employees on a pre-tax basis for individual health policies outside of an HRA framework due to IRS guidance.

  • State Laws: Churches must also be aware of state laws that may affect how they can offer health insurance reimbursements. Some states have their own health insurance mandates or regulations that may impact HRAs.

Compliance is key. To navigate these complex regulations, it’s highly recommended that churches consult with legal and financial experts who specialize in clergy tax law and church payroll. This step ensures that the church’s HRA plan is not only beneficial but also fully compliant with all applicable laws.

In short, can churches reimburse employees for health insurance? Absolutely, but doing so requires careful planning and adherence to a set of legal requirements. By considering the type of HRA that best fits their needs, understanding the tax benefits, and complying with federal and state laws, churches can offer meaningful support to their employees’ health care needs in a lawful manner.

Moving forward, we’ll address some common questions surrounding church health insurance reimbursement to clarify any lingering uncertainties.

Common Questions on Church Health Insurance Reimbursement

Navigating the waters of health insurance reimbursement can be tricky, especially for churches and religious organizations. Let’s dive into some of the most frequently asked questions to shed light on this complex topic.

Can a corporation reimburse an employee for health insurance?

Yes, corporations, including churches, have the ability to reimburse employees for health insurance premiums. This is typically done through Health Reimbursement Arrangements (HRAs), such as an ICHRA (Individual Coverage Health Reimbursement Arrangement) or a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement). It’s a way to offer health benefits without providing a traditional group health insurance plan.

Are churches exempt from ACA?

When it comes to the Affordable Care Act (ACA), churches are not entirely exempt. Churches with 50 or more full-time employees are considered applicable large employers (ALEs) and are required to offer health insurance that meets ACA standards or face potential penalties. Churches with fewer than 50 full-time employees do not have this requirement but can still opt to provide health insurance through various means, including HRAs, without facing penalties.

Is employer reimbursement for health insurance premiums taxable?

The tax implications of health insurance premium reimbursement depend on how the reimbursement is structured. Reimbursements through properly structured HRAs, such as an ICHRA or a QSEHRA, are not taxable to the employee. This means that employees can receive tax-free money to pay for their individual health insurance premiums. However, if a church or any employer provides health insurance reimbursement outside of these arrangements, it could be considered taxable income for the employee.

It’s crucial for churches to navigate these waters carefully, ensuring they comply with legal requirements while providing valuable benefits to their employees. With the right approach, churches can support their staff’s health needs in a tax-efficient and legally compliant way.

Moving forward, we’ll explore how to implement health insurance reimbursement in your church effectively, focusing on setting up HRAs, consulting with legal and financial experts, and maintaining proper documentation and record-keeping.

Implementing Health Insurance Reimbursement in Your Church

Implementing health insurance reimbursement through Health Reimbursement Arrangements (HRAs) in your church is a thoughtful way to support your employees’ health needs. Here’s a simple guide to help you navigate this process.

Setting up HRAs

  1. Choose the Right HRA Type: Depending on your church size and needs, decide between ICHRA (for any size) and QSEHRA (for churches with less than 50 employees). Each has its benefits and rules.
  2. Plan Design: Determine the allowance amounts, which expenses will be eligible, and who will be covered.
  3. Provider Selection: Work with a reputable HRA provider or insurance company. They can help you design your plan and manage reimbursement requests.
  4. Employee Notification: Clearly communicate with your employees about the new benefit, how it works, and how they can use it.

Consulting Legal and Financial Experts

  • Legal Guidance: It’s crucial to consult with legal experts familiar with church operations and tax law. They can ensure your HRA plan complies with federal and state laws.
  • Financial Advice: Financial advisors can help you understand the tax implications and financial benefits of HRAs for both the church and its employees.

Documentation and Record-Keeping

  • Plan Documents: Keep detailed records of your HRA plan design, including coverage terms and employee eligibility.
  • Reimbursement Records: Document all reimbursement requests, approvals, and denials. This information is vital for tax purposes and compliance reviews.
  • Employee Communications: Maintain copies of all communications with employees about the HRA, including educational materials and notifications.

By following these steps, your church can set up an HRA that benefits both the organization and its employees. The goal is to provide health care support in a tax-efficient, legally compliant manner. Consulting with experts and keeping thorough records will help you navigate this process smoothly, ensuring your church and its employees reap the full benefits of health insurance reimbursement.

As you move forward, consider the impact that offering health insurance reimbursement can have on your church community. It’s not just about compliance or financial benefits; it’s a way to show care and support for those who dedicate themselves to your church’s mission.

Next, we’ll dive into some common questions about church health insurance reimbursement, providing clear answers to help you navigate this important aspect of church administration.

Conclusion

In wrapping up our journey through the complexities and opportunities of health insurance reimbursement for churches, we’ve uncovered a path that not only aligns with legal standards but also embodies the spirit of support and community that churches hold dear. At Prestizia Insurance, our commitment is to guide your church through these waters, ensuring that you can offer your employees, including your dedicated pastors, the health benefits they deserve in a manner that’s both compliant and caring.

Benefits of health insurance reimbursement for churches and employees are manifold. For churches, navigating the legal requirements to provide health insurance reimbursement showcases a commitment to the well-being of your employees. This not only aids in attracting and retaining top talent but also fosters a positive work environment where employees feel valued and cared for. It’s a testament to putting faith into action, by ensuring the health and security of those who serve.

For employees, the knowledge that their health and wellness are prioritized brings peace of mind and satisfaction. The flexibility offered through Health Reimbursement Arrangements (HRAs) allows them to choose coverage that best suits their needs, leading to improved health outcomes and personal well-being. Moreover, the tax-free nature of HRAs can provide financial relief, making healthcare more accessible and affordable.

When churches leverage the opportunity to reimburse employees for health insurance, they’re doing more than meeting a legal obligation. They’re reinforcing a culture of care, support, and community — values at the heart of every religious organization. Through strategic planning and the right partnerships, your church can navigate the complexities of health insurance reimbursement, ensuring compliance while demonstrating an unwavering commitment to your team’s health and happiness.

At Prestizia Insurance, we’re here to help you achieve just that. Our expertise in church insurance solutions means we understand the unique needs and challenges your church faces. Let us assist you in crafting a health insurance reimbursement plan that not only complies with legal standards but also aligns with your mission and values. Together, we can ensure that your church remains a place of support and care, not just for your congregation but for those who serve it as well.

The journey to providing health insurance reimbursement is a significant step towards demonstrating the care and value you hold for your team. It’s a reflection of your church’s mission in action, touching the lives of those who dedicate themselves to your community. With the right approach and guidance, your church can navigate this path successfully, reinforcing your commitment to the well-being of your employees and setting a standard for others to follow.

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