How Does the Affordable Care Act Affect Churches?
Attorney Frank Sommerville walks churches through the next two years of changes.

Q: What are some provisions of the Affordable Care Act that take effect in 2013 and 2014 that churches should be aware of?

A: Well, the biggest provision that affects 2013 is going to be changing your cafeteria plan limit for medical expenses to $2,500. But the really big problem is planning in 2014 for 2015, because all portions of it go into full effect for employers on January 1, 2015.

Small churches are going to be okay if they have less than 50 full-time equivalent employees. And there are regulations and tests for that. But it's those that have 50 or more full-time employees that have to be careful about defining who is a full-time employee, because it's not a definition that's used anywhere else. And if you have 50 or more full-time equivalents, you have to provide access to insurance.

In testing for full-time employees, the statute uses 30 hours per week as fulltime.

The regulations have created three periods. There is a compliance or testing period. There is an administrative period. And then there's a stabilization period.

If the testing period can be between 6 months and 12 months, 2014 is the testing period. If, during the testing period, an employee works on average of thirty hours or more per week, then they are going to be considered full-time. And then you have the administrative period, which says within 90 days, those employees who averaged thirty-plus hours during the testing period have to be covered by insurance. Any adjustments that are going to be made to employee schedules have to be made this year, if you're trying to drop them to part-time status.

If you're using the 12-month test, and there's someone who is, on average, working 30 hours or more for the prior 12 months, you have to provide coverage or access to coverage for the next 12 months, even if they don't work the 30 hours per week.

So whatever they are doing today will affect the insurance availability and cost in 2015. They need to be measuring those times today, and they need to be computing the people's times so that they see if they fall under that 30-hour rule. There is one exception, and that's for temporary workers. That would be someone who works less than 120 consecutive days within the year. So if you're hiring temporary help, you don't have to do the testing even if they are 30 or more hours per week.

The other definition of full time, aside from the 30-hour test, is anyone that the employer designates as full-time, regardless of the number of hours they actually work. If the church is providing benefits to employees that work 25 hours per week and they consider them full-time because of their benefits, then the 30-hour test goes away, and you apply 25 hours that the employer as already defined.

There are two penalties that are involved. If you don't provide access to the health insurance, there is a monthly penalty that can go up to $3,000 per year for the failure to provide the access. Each month that that employee does not have access to health insurance, you get fined.

The other penalty is that it must be affordable. And that means that the employee portion of the health insurance premium cannot exceed 9.5 percent of that employee's W-2 wages. This is going to affect the church's cost, especially with lower-income employees, because if you have a full-time employee who's making $30,000 a year, that person's health insurance cost has to be less than $250 a month, and that may be difficult to find. So that is adequate minimum coverage.

Those are the types of things they need to be doing the testing on and setting the test period and determining who's going to be a covered employee for the portion of Affordable Care Act.

If your church does not provide healthcare coverage for employees, the Affordable Care Act still mandates them to obtain coverage. Be sure to see the upcoming article, "Meeting the Mandate" in the December issue of Church Finance Today to learn how to help them decide what's best for them. Not a subscriber yet? Sign up today to receive this and a whole year's worth of invaluable information for churches.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."


Displaying 1–10 of 12 comments

Janet V Kennedy-jacobs

May 17, 2016  9:22pm

where are the answers to the health care questions?

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Steve Hoke

February 15, 2016  11:59am

Can a church with one employee (pastor) pay the pastors insurance premium tax free? Can the pastor sign up with the marketplace and receive subsidized premium payments and continue to have the church pay the premiums tax free? If the church pays 80% and the pastor 20%,is the pastor's 20% also tax free?

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June 15, 2014  3:57pm

We are a small churh with 2 FT employees. We have, up to this year, reimbursed our employees for their medical insurance expenses (they are both with a medishare program). We also reimburse them for their out of pocket medical expenses (with a $3,000 annual limit). According to the Church Finance Newsletter (May 2014) we can no longer reimburse these expenses and consider them non-taxable to the employees. Any advice?

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March 06, 2014  8:08am

What is a "full-time equivalent"?

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January 23, 2014  12:43pm

We pay our minister as as 1099 employee. Is she eligible for coverage as an employee under the affordable care act? We do not send a W-2 form.

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January 10, 2014  5:14pm

Karen–The Affordable Care Act mandates employers with 50 or more full-time equivalents to provide coverage or else face penalties (the penalty portion of the law for employers has been delayed to January 1, 2015). But that doesn't mean employers with 50 or fewer full-time equivalents still can't provide coverage; the reference on simply means the exchanges are available to employers with 50 or fewer FTEs, even though they're not mandated to provide coverage. Best, Matt

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January 10, 2014  7:46am

Do small churches fall under the SHOP Marketplace? If so, states that it's open to employers with 50 or fewer FTEs. Which leads me to believe that a small church has to provide insurance to it's employees. Please advise.

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Erica Q. Martin

November 05, 2013  2:06pm

May a church make musician a 1099 employee for tax purposes? One musician, received a salary & W-2 in 2012 & 2013. The musician is a part time position. Will they need a contract for 2014 to be considered for a 1099 employee? The other musician is a non-member which we would like to hire in January 2014. Please advise. Thank you.

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November 02, 2013  2:20pm

If a church is considering legally spinning off a day care center to make certain that the 50 employee rule does not apply, do I understand that the time period to compute this average over 6 months can begin as late as July 1, 2014? Thus, if center no longer legally part of church July 1, then church would not need to count day care staff in the numbers? Thanks.

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October 25, 2013  1:21pm

Greetings Frank. Just being sure I"m clear. If you are a small church (with under 50 employees) and offer health care to full time employees only, must the threshold be 30 hours per week? Or can it remain at 40 hours? You referenced "regulations and tests for small churches. Please elaborate.

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