Reimbursing Employees for Health Premiums

Our UCC Attorney shared the following:

Under the Affordable Care Act, it is not legal for a company (church) to reimburse an employee for health care insurance premiums. The IRS issued guidance on this in 2013 that was revised in 2015 to give some relief to smaller organizations (less than 50 employees) that engaged in this practice. That relief has now expired, and a company can incur a significant fine if it reimburses health care premiums to employees. It is considered establishing a group health plan that does not comply with the ACA.

However – Employers (churches) may legally adjust the salaries of their employees to take account of a particular employee not participating in the group health plan, but it may not REQUIRE the employee to spend that adjustment on healthcare premiums, nor can it ask for proof of coverage as a condition of paying the reimbursement. You can tell the employee: “We are adjusting your salary upwards by $X to recognize that you are paying your own healthcare premium, but you can use that adjustment for any purpose. The adjustment is [pensionable/nonpensionable].” Doing so in writing will keep a record of why that particular employee may have a salary that is different from other employees. Any salary adjustment is treated as income and taxable just like all of the employee’s other income.