Churches don’t all agree on last year’s federal health-care reform legislation.
Some love it. Some hate it — and some will get a check from the government because of it.
The Internal Revenue Service ruled earlier this year that churches qualify for a tax credit to offset their health-insurance premiums for their employees. It’s the same refund that small businesses can get. But getting the word out about the refund and figuring out which congregations qualify has proved to be a challenge.
For congregations such as Blakemore United Methodist in Nashville, the refund could mean hundreds, or even thousands, of extra dollars in their budgets.
That’s why George Bass, the church’s volunteer treasurer, spent Monday trying to decipher the tax form needed to apply for the refund. He’d just learned about the credit over the weekend, after getting an email from the Tennessee Conference of the United Methodist Church.
“I didn’t know anything about it,” Bass said.
The congregation could receive a credit to offset payroll taxes of about 25 percent of the cost of its health-care premiums.
Bass thought the refund might end up being around $1,000. The funds would be used for church mission work. The Rev. Herbert Lester, pastor of Blakemore, said the refund would cut the church’s administrative costs.
“It would allow us to redirect those funds to ministry,” he said.
Church plans qualify
When health-care reform first passed, it wasn’t clear whether churches would qualify for the credits. That’s because many denominations run their own health-care insurance programs, which were not specifically mentioned in the legislation.
“When it came out and we read the provisions, it looked like the credit might not be available to churches,” said G. Daniel Miller, a Washington, D.C.-based attorney who advises denominational health plans.
Representatives from church-based insurance plans met with the Internal Revenue Service to make their case. The IRS agreed that church plans qualify.
“This is one of those instances where the regulators got it right,” said Andrew Hendren, associate general counsel for the General Board of Pension and Health Benefits of the United Methodist Church.
To qualify, a church must have fewer than 25 employees and pay an average annual salary of less than $50,000. The bigger the church, the smaller the percentage of the tax credit. Small churches, those with less than 10 employees, can get the biggest credit.
“For a local church with a pastor and a few lay employees, that could be a few hundred dollars to a few thousand dollars,” Hendren said. “That’s real money these days.”
Denominational health plans like the Methodists’ and GuideStone, run by the Southern Baptist Convention, have put together websites with guides for churches on how to get the tax credit or sent out information to pastors.
That doesn’t mean the word has gotten through. The Rev. Paul Barnes, pastor of Priest Lake Presbyterian Church, said he’d not heard about the credits from the Presbyterian Church (USA)’s pension and benefits board.
“I get a lot of information from the pension board, and I don’t always look at it,” Barnes said.
He’s interested in finding out more about the credits, though he wasn’t sure whether it would apply to his congregation.
Complication arises
That’s because one complication with the tax credit comes up when the pastor is the only staff member at a church. For the most part, ministers are considered self-employed, so they don’t have payroll taxes withheld from their churches. In those cases, there’s no tax to credit.
However, if a pastor chooses to have the taxes withheld from his pay by the church, the credit would likely apply. That’s what denominational plans are advising their congregations. But the IRS hasn’t yet specifically ruled on those cases.
The Rev. Dan Phifer, pastor of First Lutheran Church in downtown Nashville, said he’d also not heard about the credit. But he plans to look into it. The church can always use more money for ministry, he said.