Attorney Danny Miller, an editorial advisor for Church Finance Today, specializes in employee benefits and closely follows the Affordable Care Act and its many implications for nonprofits and religious organizations. Miller recently sat down with Church Finance Today to share key ACA developments and requirements that churches should note in 2016.
A few key employer reporting requirements for the ACA take effect in 2016. What should churches know?
The employer reporting requirements in 2016 are the biggest issue for churches to understand.
One ACA reporting requirement pertains to the so-called “individual mandate.” By February 1, employers are required to tell the Internal Revenue Service which employees had “minimum essential coverage” in the 2015 tax year. Every person is supposed to carry health insurance coverage. If the person doesn’t, then the person has to pay a tax.
This employer reporting requirement applies to all employers—there is no small employer exemption. However, the following situations may affect whether your church has to submit a report directly to the IRS or not:
- If you are a church and you don’t have any plan at all—you send your employees to the marketplace and they buy their coverage there—then there is no report for your church to file.
- If your church has an insured plan, the insurance company should file this report for you.
- If your church has a self-insured plan or your church participates in a self-insured plan, then there is a reporting requirement you must meet—but if you’re a church participating in a denominational health care plan, you’ll want to check because the denomination’s plan may file the report for your church.
If your church determines it must file the report, it will use Form 1095-B. It’s also important to note that copies of the individual mandate reports must be given to all employees.
The other key ACA reporting requirement pertains to “applicable large employers,” ones with 50 or more full-time equivalent employees (part-timers’ hours have to be aggregated so that a “full-time equivalent” calculation can be made for them). This report must be filed with the IRS on a Form 1095-C by February 29, or by March 31, if filing electronically. If you’re not an applicable large employer—and most churches aren’t—then you don’t need to worry about this.
Lastly, it’s also important for churches to know about another ACA employer reporting requirement that does not apply to them: reporting the value of an employee’s health insurance coverage on a W-2. Right now, church plans—plans that are not subject to ERISA (the Employment Retirement Income Security Act of 1974)—are not subject to the ACA’s W-2 reporting requirement on coverage value. That could change in the future.
We continue to get calls and emails regarding health care premium reimbursements made by churches on behalf of their employees. Our previous coverage explained the 2013 guidance from the IRS (IRS Notice 2013-54). We also noted the updated guidance issued in late 2014, and the temporary relief the IRS provided in 2015 for small employers to comply. Where do things now stand?
Through IRS Notice 2013-54, the IRS said health care premium reimbursement arrangements are group health plans, subject to the ACA’s market reform rules, and by the nature of those reimbursements, they violate certain ACA rules and thereby expose employers using such arrangements to ACA penalties. The way the IRS worded its notice, though, led many to believe that the reimbursements still were permissible, but only needed to be taxed. This was not the case.
In November 2014, the IRS and other agencies issued another in a series of “frequently asked questions” that included more details explaining the position that health care premium reimbursement arrangements could lead to ACA penalties. This FAQ caused a lot of consternation. To the IRS’s credit, in February 2015, it issued IRS Notice 2015-17, and in this notice, although it stood behind its position taken in IRS Notice 2013-54, it granted transitional relief through June 30, 2015, for all small employers (that is, any employer that is not an applicable large employer) to begin complying. Any violations by small employers from 2014 and into the first part of 2015 were forgiven.
Note that applicable large employers were not entitled to this transitional relief.
The relief deadline has passed. The penalty for noncompliance is severe: $100 per day per employee. But it still appears there are a number of churches who haven’t gotten the word that having a health care premium reimbursement arrangement is simply not permissible (with one exception—the one-participant exception—explained further below). Churches concerned about possible noncompliance with this provision of the law should consult their legal counsel.
Moving forward, churches can avoid ACA penalties for health care premium reimbursements through a fairly simple solution. Churches can increase an employee’s wages by the amount previously reimbursed—but without stating the increase in wages must be used by the employee to reimburse him or her for a health care premium. For instance, let’s say your church employee pays a $250-a-month premium. Your church will increase the employee’s monthly salary by $250 and you will tell the employee, “Use that $250 any way you want to—we’re doing it so you can use it for the health care reimbursement, but you’re not obligated to.”
I previously mentioned the one-participant plan exception from the ACA. It’s complicated. The bottom line: If you are a church with only one employee, and you reimburse that employee for his or her health care premiums, then under this exception, you can continue doing so on a pre-tax basis without violating the ACA. However, if you are only reimbursing one employee for health care premiums, but you have more than one employee, you can reimburse the employee and avoid ACA penalties—but you may not be able to do so on a pre-tax basis.
Many small businesses and tax-exempt organizations, including churches that provide health insurance coverage to their employees, qualify for a special tax credit authorized under the ACA. Where does this provision now stand?
The IRS has great information on irs.gov
that explains the credit and who qualifies for it. For instance, your church needs to have 25 or fewer full-time equivalent employees and average annual wages of $50,000 or less.
As far as where the credit stands today, starting in 2014 and moving forward, an employer can only claim the credit if it purchased coverage through the ACA’s SHOP Marketplace. Prior to 2014, you didn’t have to purchase coverage through the SHOP Marketplace. Now you do. Also starting in 2014 and going forward, an employer can only claim the credit for two consecutive years. It’s not an unlimited ongoing credit.
Because of these limitations, the credit is less useful now than in previous years. But employers should look into it because it can provide significant funds back to them. For a nonprofit, like a church, you claim the credit to reduce your payroll taxes, your FICA taxes.
For a church that may have qualified for a credit for a past tax year and didn’t realize it, can it make any tax return amendments and apply to receive the credit retroactively?
Yes. But the church will want to talk with a tax accountant about doing this. There appears to be no guidance from the IRS on this issue. I believe you could amend payroll tax returns from prior years and claim the credit that way. The IRS instructions require nonprofit organizations to file their claims using a Form 990-T. Once you file that form with an amended tax return, I would think they would process the refund.
There are statutes of limitation for correcting returns, so consult with an accountant first.
One other problem to watch for here, too, is that nonprofits, such as churches, receive the credit against their payroll taxes. The ministers on staff pay SECA taxes, not FICA taxes, so churches may not be able to take full advantage of the credit.
Go deeper on the Affordable Care Act and what it means for churches with these resources, both available on ChurchLawAndTaxStore.com:
- Affordable Care Act: Church Administrators Survival Guide
- The Affordable Care Act Survival Guide: Supplemental Articles
Matthew Branaugh is editor of content and business development for Church Law & Tax at Christianity Today. He earned his juris doctor (JD) with honors from the University of Denver Sturm College of Law.