What non-taxable fringe benefits are available to pastors? And what requirements must be met to qualify each benefit as non­taxable? « Stewardship Services Foundation
What non-taxable fringe benefits are available to pastors? And what requirements must be met to qualify each benefit as non­taxable?
Disability Insurance – The church can reimburse its pastor for this premium or pay it directly.
Health Insurance – Group health insurance plans are a qualified fringe benefit. If the church does not qualify for a group plan because there is only one employee, you will need to establish either a Medical Reimbursement Account or a Health Reimbursement Arrangement.
Health Reimbursement Arrangement – This is an amount which the church sets aside to be used for reimbursement of non-covered medical expenses. Left-over funds may be carried forward to the following year. An HRA is subject to discrimination laws and all employees would receive the same amount.
Housing Allowance – This is a part of the pastor’s salary which is designated to be available for housing costs. This needs to be approved by the board or church in writing and in advance of expenses. The portion of this designation which is used to provide housing is exempt from Federal Income taxes, but not self-employment tax (Social Security/Medicare).
Life Insurance – The church may provide up to $50,000 group term life.
Medical Reimbursement Policy – This is an amount set aside to be used for reimbursement of non-covered medical expenses. The funds are made available through salary reduction. This is a “use it or loose it” proposition, so any funds remaining at year end cannot be given as salary.
Reimbursement/Expense Account – The church must require receipts (it is not enough for the pastor to voluntarily substantiate his expenses). This is a “use it or loose it” proposition; any unused portion cannot become salary.
Tax Sheltered Annuity (403-b) – The church contributes directly to the financial institution chosen. The Pastor or church determines the amount of the contribution, which would exclude it from taxes.
Tuition Benefits for your dependents – The school must also be the employing body in order for this to be a tax-free benefit (i.e. the church and school are one corporation).
What benefits are taxable?
Health Insurance – Insurance obtained through a government website is taxable. Any amounts paid for individual policies are taxable (unless a one person stand-alone HRA or MRP is used).
Life Insurance – in excess of $50,000, or any policy which is not considered group term life.
Personal use of a Church/School owned Auto – a log must be kept to determine the value of this taxable benefit.
Reimbursements – when a Pastor is not required to substantiate or “pay back” the excess.
Tuition Benefits for your dependents – These benefits are considered a part of the Pastor’s taxable salary when the school is not a part of the church.