Q&A: Can We Give Additional Income to a Church Employee Who Opts Out of Our Medical Plan?
Q&A: Can We Give Additional Income to a Church Employee Who Opts Out of Our Medical Plan?
Increasing an employee’s paycheck in lieu of participation may jeopardize your medical insurance plan for all participants.

My church has an employee who is covered by his spouse’s medical insurance plan. Is it okay to give a stipend to an employee who declines our plan so long as it is reported as taxable income?

The answer is maybe.

You may not offer a cash or benefit option to employees who choose not to participate in your group health insurance plan as a general choice. Doing so—increasing an employee’s paycheck in lieu of participation in your plan—may jeopardize your medical insurance plan for every participant by making the benefit taxable for all of your employees.

There are ways to structure an “opt out” payment in your medical benefit plan that complies with the ACA and does not jeopardize the plan benefits if the employee participates in a spouse’s ACA-compliant group health plan.

The church should also examine whether it may make the opt-out payment to its Section 125 plan (cafeteria plan) to preserve the tax benefits of the plan. Unless the tax benefits are preserved through the use of the Section 125 plan, the opt-out payment is taxable.

Elaine Sommerville is a CPA, an editorial advisor for Church Law & Tax, and the author of Church Compensation: From Strategic Plan to Compliance.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold 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."

Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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Posted: July 22, 2019

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