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.
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