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IRS Notice 2013-54 Poses Changes for Many Churches

Church-paid medical insurance premiums face taxation.

Church leaders have flooded us recently with questions about a new Internal Revenue Service notice that addresses the tax treatment of employer-paid medical benefits. Before the enactment of the Affordable Care Act, employers could provide private health insurance, tax-free, to employees either by directly paying the costs of that insurance to health insurers or by reimbursing the employees for the substantiated cost of their premiums.

But several ACA-related reforms called into question the tax-free treatment of these arrangements heading into 2014. The IRS addressed this question directly in late 2013 when it issued IRS Notice 2013-54. The implications of this notice are significant for churches because, in many instances, these arrangements are no longer allowed and may be subject to substantial penalties.

Churches and Ministers Should Be Aware of the Following Deadlines in May and June of 2014

Note: If a date listed below for filing a return or making a tax payment falls on a Saturday, Sunday, or legal holiday (either national or statewide in a state where the return is required to be filed), the return or tax payment is due on the following business day.

Semiweekly requirements

• If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2014 the lookback period is July 1, 2012, through June 30, 2013), then the withheld payroll taxes are deposited semiweekly. This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday. Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer's payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee's share of Social Security and Medicare taxes (7.65 percent of wages), and the employer's share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

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