Reimbursing employee Medicare insurance

[Margaret CPA in OH]

I'm fairly sure I know the answer from the research I've done but my church finance committee won't like it.  I referenced Church and Clergy Tax Guide and IRS.

Employee at church will begin taking SS in January and has decided to sign up for Medicare Part D and Supplement in addition to A and B.  In raw dollars this would be about $9000 less than her insurance paid by the church on the group plan.  She is requesting reimbursement for the ~$300 per month this would cost her.  As a small employer, I found the church could have a QSEHRA so this would work but only if there was no other group plan for the other employees.  Well, the other employees, including the minister, would not like that.  In fact, we are required to provide the minister her insurance through the denomination plan.

Her salary could be increased to cover this and we would have to change the current personnel policy but the other employees possibly would expect the same percentage increase which isn't a budget option (even allowing for the savings) and would set a bad precedent, I think.

Anyway, are there other ideas I am for sure missing?  It seems I'm usually the bad news bearer when good folks at church want to do good things that IRS considers not permissable.  Thanks!

[Lee B]

Rather than increasing her salary,  give her a taxable health insurance stipend, in lieu of being on the church policy.

This is really a matter of managing perceptions. In other words, the explanation has to be framed so that fairness is the objective so that she isn't penalized for turning 65.

I would think that a minister would be up to the challenge.

[Margaret CPA in OH]

Thanks, cbslee.  I keep going round in circles finding one thing that says okey dokey and something else that says, nope.  It seems that the employee is free to reject the church group health plan but the stickler is reimbursing the MC expense tax free which is her desire.  By providing a taxable HI stipend, she gets penalized for rejecting the group plan while the church realizes substantial savings.

I suggested that the treasurer get a documented opinion and IRS cite from the denomination.  I am often the main provider of tax related issues but this one has me in circles and I don't want an error on my plate.  Thanks again!

[Patrick Michael]

On 10/20/2018 at 2:44 PM, cbslee said:

Rather than increasing her salary,  give her a taxable health insurance stipend, in lieu of being on the church policy.

 

My wife gets and an "Insurance Opt-Out" payment twice an year for not using her employer's health insurance.  Employer saves about $9,000 a year and my wife is happy to get the extra money.  A win-win.  

[Margaret CPA in OH]

Patrick Michael EA, how large is your wife's employer?  Is the payment a taxable 'gift' and/or is it nontaxable and to reimburse her for her Medicare B, D and Supplemental coverage?  Does the employer have a stated policy of making the payments for those over 65 to encourage them to sign up with Medicare or does it apply to all employees of any age?

My understanding is forcing or encouraging or paying someone to utilize Medicare rather than a group plan is considered detrimental to the taxpayers and Medicare system, i.e., forcing the Medicare system to cover what the business should be covering in fairness under ACA.  There is much more to this, of course, and there are exceptions to employers of 20 or fewer and whether there are 2 or more over 65.  It's just complicated and I'm struggling to find a simple, definitive answer.  My brain needs simple, you know!

Thanks for responding, though.

[Patrick Michael]

It's a large employer, I would guess around 500 employees.  Not sure if it makes a difference but she is covered by a union contract.  It is taxable.  It is available to everyone who opts out of the insurance plan.  The only requirement is she has to submit proof she is covered by another insurance plan.

 

[Lee B]

In my opinion, there isn't any way to reimburse her that would be nontaxable.

 However, you could gross up the taxable stipend to cover the additional taxes so that she isn't penalized.