Why do pastors have to pay 2% of their salary for health insurance?
Action at the 2003 Annual Conference Sessions directed that beginning January 1, 2004, all participants in the Conference Health Insurance plan (clergy and lay employees) would begin contributing 2% of their cash salary towards the cost of their insurance. These days, most persons who are covered by a health insurance plan make some contribution toward it?s cost.
Where does the 2% go?
In most cases it doesn?t go anywhere, but is kept by the local church to be used when the next health insurance bill comes.
Is there a way to do this that is "tax-wise"?
Yes, by designating the 2% amount to be part of a "125 Plan" the pastor/lay employee does not have to pay income tax on that amount. To set up a 125 Plan the church MUST consult a qualified tax professional. PLEASE SEE NOTE ON REVERSE.
Can churches pay this amount for their pastor, instead of giving the pastor the 2% in a raise?
No, for a number of reasons. First, the resolution passed by conference clearly makes the paying of this amount the participant's responsibility, not the local church's. Second, the spirit behind the action was for active and retired persons to contribute together in our efforts to cope with rising costs. Third, the pastor/employee cannot use the "125 Plan" tax savings provision unless the money is deducted from his/her salary. Finally, in order for there to be consistency in salary levels it is important that the salary is reported at its full level and then the deduction is taken from that amount.
Wouldn't it be easier if the pastor just wrote a check and sent it to the Conference with the health insurance bill?
Not really, because to qualify for the "125 Plan" tax advantage it must be a deduction made by the church.
What exactly is "cash salary" and on what amount do you figure the 2%?
For this purpose, "cash salary" is the compensation paid to the pastor/employee from all sources, but does not include insurance, pension, accountable reimbursement, or travel and training provided by the church or other salary-paying unit. It does not include housing allowance or the equivalent value of a church owned parsonage.
What if part of the pastor's salary is being paid by another church, or by funds from the annual conference (Equitable Compensation or Supplemental Salary funds)?
The 2% is based on the full cash salary, from all sources.
What about part-time pastors? What if a part-time pastor is already paying part of their health insurance cost?
A church which is not required to pay for health insurance (such as a church with a part-time pastor) but has opted to do that or share the cost with the pastor/lay employee is still entitled to this additional help. All participants in the plan are to pay 2% of their cash salary to the church to help with healthcare costs. Persons who are not participating in the plan do not have to pay the 2%.
In the case of clergy couples, do both persons have to pay?
For clergy couples who are enrolled in the plan as a couple or family, only one clergyperson is considered as a participant, the other is considered a dependent. Only the participant has to pay the 2%. If two or more churches are sharing the cost of the health insurance, the 2% should be distributed appropriately between the churches paying the premiums.
So, if a church gives a 2% raise, will the pastor "break even"?
Not really. While the "125 Plan" is a big help with income taxes, it cannot be deducted when calculating Self-Employment (Social Security and Medicare) taxes. That would take a raise of approximately 2.3%. But that doesn?t take into account the effects of inflation on the actual value of the dollars a pastor receives.