IRP ¶ 80,600 (1999)
Background. It is common for churches to pay some or all of the medical expenses of their ministers or lay employees. This can include direct payment of expenses, reimbursing employees for expenses they have incurred, and paying a "deductible" amount on an employee's medical insurance. The tax consequences of such payments and reimbursements are not well understood.
Section 105 of the tax code permits employees to exclude from gross income amounts received under an employer financed "accident and health plan" as payments for permanent injury or loss of bodily function, or as reimbursements of medical expenses. The payments can be made on behalf of a spouse or dependent of the employee. This exclusion assumes that the employer has established an "accident or health plan." Unfortunately, the requirements for such a plan are not specified in the tax code. The regulations simply state that "an accident or health plan is an arrangement for the payment of amounts to employees in the event of personal injuries or sickness." The regulations further specify that "an accident or health plan may be either insured or uninsured, and it is not necessary that the plan be in writing or that the employee's rights to benefits under the plan be enforceable." Of course, a written plan is preferable, since it generally will eliminate any doubt regarding the existence or date of a plan. The regulations do require that notice of a plan be "reasonably available" to employees (if employees' rights under the plan are not enforceable).