By George T. Eldridge
Individually Purchased Income Protection Insurance
Individuals can pay for their health insurance or the employer (the church) can pay all or part of the premiums.
Question: Are premiums paid for income protection insurance tax deductible as a medical expense? Answer: No.
Question: Are income protection benefits tax free? Answer: Yes (Internal Revenue Code, 1, R. C., Section 104).
Question: Are premiums paid for accidental death coverage and specific loss coverage (loss of limb, loss of sight, for example) tax deductible as a medical expense? Answer: No.
Question: Are the benefits received tinder accidental death and specific loss coverage subject to income taxes? Answer: No, these benefits are tax free (L R. C. Section 101 a; Regulation 1.101-1 [a]).
Tax Tips
Since all benefit payments received from income protection coverage are tax free, this money can be very helpful during the period of disability, A broad selection of benefit periods are available, with the best plan being Lifetime Accident with Sickness to Age 65. How many preachers could have had it easier during their disability if this income protection insurance had been bought? I can think of two preachers whom I know well that could use this insurance now, but their health status would make them be rejected by all insurance companies. It would be scriptural as well as with much wisdom being shown if churches would pay for this coverage. This would be on the same basis as churches aiding the preacher in the payment of his Social Security.
Individual Hospitalization, Surgical, Medical Insurance
Question: Are premiums paid for hospital, surgical, or medical coverage tax deductible as a medical expense? Answer: Yes. In itemizing his deductions, the policyholder may deduct one-half the premiums paid for insurance to reimburse him for hospital, medical, or surgical expenses (not to exceed $150.00). This is a basic deduction. The balance of the premiums paid for such coverage may be included in his regular medical expense calculation. If all his medical expenses, including the balance of the premiums, are more than three percent of his adjusted gross income, the excess may be deducted.
Question: Are the $5.60 monthly premiums paid for Part B of Medicare included in the above rule? Answer: Yes. The individual $5.60 payments may be included in the regular medical expense calculation.
Employer Paid Health Insurance Plan
Under the Internal Revenue Code, an employer may establish a health insurance for one or more employees. Based on that Code, the church is an employer and the preacher is an employee. If the church establishes such a plan, the tax principles set out in the following paragraphs apply.
Question: If the employer does pay all or part of the premiums, whether for an individual policy or group policies, are the premiums taxable as income to the employee (preacher)? Answer: No. This situation is just like General Motors, General Electric, Texaco, Ford, Inland Steel, or any other employer paying the premium for the brethren who are employees of these companies. If the church does pay all or part of the premium, the elders or someone approved in the business meeting must sign for the church on the application. Also, the premium must be paid on the church’s checking account. The church cannot make the check payable to the preacher and he in turn write a check to the insurance company!
Question. What benefits under a church-purchased plan are tax-free to the employee (preacher)? Answer: 1. Medical expenses. Any benefits received to pay the preacher’s medical expenses are tax-free. Benefits exceeding expenses are taxable income to the preacher it all attributable to the church’s premium. 2. Limb or eye loss. Benefits are tax-free if the preacher receives them as payment for the loss, or loss of use of any member or function of the body or for permanent disfigurement. These benefits apply only to the specific losses incurred. 3. Disability income. After the 30th day, all benefits are tax-free up to $100.00 a week. From the 8th to the 30th day, the benefits are tax-free up to $75.00 a week, if the benefits received are less than 75% of the employee’s regular weekly wage. If the employee is hospitalized for one day or more, this rule applies from the first day of disability.
Conclusion
The brethren frequently have employers providing these fringe benefits. There is nothing unscriptural in churches paying for these benefits for the preachers. Many heartaches, sleepless nights, and financial hardships could be avoided if elders saw that the preacher had an adequate insurance program.
(Editor’s Note: Although articles of the following kind seldom appear in Truth Magazine, the following article was prepared at my specific request so as to inform churches and preachers as to some specific benefits that may be applicable in their cases.. The article was prepared by an accountant, but is not offered as irrefutable tax advice by Truth Magazine. We assume no liability as to the accuracy of the tax court rulings on specific statements made herein. We recommend that you procure your own information from an accountant, tax consultant, or tax attorney. But, since the information in this article affects so many brethren, we thought its general circulation might be profitable.)
Truth Magazine XX: 46, p. 729
November 18, 1976