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In December, Congress passed a law that allows small employers to once again reimburse an individual for health insurance premiums without incurring a $100-per-day penalty. To qualify, the church must have a plan document drafted for the reimbursement arrangement. The plan must be offered to all full-time employees, which is anyone who works 30 or more hours per week. Also, you cannot fund the reimbursement through salary reductions.

There are now limits on how much can be reimbursed annually: $4,950 for an individual and $10,000 for a family. These limits are prorated for anyone not covered for the entire year. The employee must provide proof of “minimum essential coverage.” The plan can also cover qualified medical expenses.

The reimbursements are tax-free, but they are required to be reported on the employee’s W-2 (likely in box 12). Also, any employees receiving a premium tax credit under the ACA will have the credit reduced if they are eligible for reimbursement from the employer/church.

We recommend contacting an attorney or benefit provider to draft a proper Health Reimbursement Plan that complies with all aspects of this new law.

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