Serving Faith Based Nonprofits

Keeping up with legislation has been difficult on churches.

Over the past two years I have had dozens and dozens of difficult conversations with clergy from small, local Churches who have been tearfully concerned about their health insurance. Most have faced a series of events that has pushed their ability to maintain adequate health coverage into a death spiral. Notices of a large premium increases, that they can not afford, combined with conflicting information regarding the ability of  Churches to contribute to clergy's health insurance premiums has created a crisis. In 2016, fewer than half of the solo pastors in the U.S. received any health insurance benefits.

Many small businesses and practitioners I work with had not heard of an HRA prior to the 2013 IRS guidance that attempted to prohibit them. But small Churches with solo pastors, they have been using defined contribution plans or some form of "employer payment plan" since before Revenue Ruling 61-146 was issued, January 01, 1961, which essentially created tax-free health insurance reimbursement plans.

In 2013, IRS Notice 2013-54, a poorly crafted, overreaching piece of subregulatory guidance, effectively shut down these reimbursement arrangements that were widely used by small religious organizations. Governing associations, religious orders and the informal network of advisers to these small nonprofits broadcast the warning, Churches may not pay or contribute to clergy's health insurance. If something has to be done, they said, increase pay for your clergy.

The confusion touched off by this guidance has lingered. I still speak with Church boards today that do not have a clear understanding of their options. In fact, many of them have an inaccurate belief that they cannot legally help their clergy with a health benefit other than group health insurance, and that is generally out of reach. They believe they are fettered to increasing pay to help pastor's with health coverage. 

The clergy are subject to a different set of rules, when it comes to taxation. They are generally paid as W-2 employees however, the employing nonprofit does not pay traditional payroll taxes, the clergy pays them, for both parties. For the purposes of payroll taxes, pastors are self-employed and must pay 15.3% of their earnings to payroll taxes. So, increasing pay is not a coveted plan.  

These small organizations do not have the capital to spring for group health insurance. They were not high on the list of prospective clients for insurance brokers, a typical source for regulatory guidance to small organizations. So, many of them do not understand the law. They don't know about the single participant exclusion from the IRS's heavy handed guidance. And they haven't heard about the new qualified small employer HRA.

There absolutely are viable, affordable options for small, nonprofit religious organizations to provide tax-free dollars to clergy for health insurance premiums and qualified medical expenses. Whether it is a solo pastor or full-time pastors, worship/music leaders and staff, there are options. 

Over the last two years, many of those difficult conversations I have had ended in tears. Thankfully, they were tears of joy because we were able to help get health benefit plans in place. Over the past two years we have had the privilege of helping these blessed organizations provide health benefits through an HRA or QSEHRA:

Upper Deer Creek Church	Camp Fairwood
Word of Life Community	Living Faith Missionary Church
Parkview Church	Atwater Community Church of the Nazarene
Phantom Ranch Bible Camp	Shoreline Community Church
The Seed Church	Calvary Baptist Church
Garner United Methodist Church	Kirtland Christian Fellowship
Novation Church	Syracuse Church of Christ
Vertical Church	Tuscon Church of Christ
Forest Ridge Community Church	National Farm Worker Ministry
First Baptist Church	First Baptist Church of South Haven
Church in the Wildwood (Christian) Inc.	ASAP Ministries
Calvary Grace Assembly of God	Liberty Community Church
The Falls	Lititz Moravian Congregation
Christ the King Lutheran Church	Chaparral Baptist Assembly, Inc
Trinity Forum Academy	Eudora Baptist Church
CityLight Church	Baptist International Evangelistic Ministries
Grace Baptist Church	Metro Detroit Christian Church
Cross Church	Grace Baptist Church (Stuart, VA)
Marlowe Assembly of God	Caesar Ministries
Farragut Christian Church	Mamre Baptist Church (Kitts Hill OH)