Fringe Benefits

Fringe benefits are great to include in your pastor’s compensation package; however, there are a few factors you should consider before you put together those benefits...

Some examples of fringe benefits include:

• Housing Allowances
• Expense Reimbursements
• Health Insurance
  
• HSA (Health Savings Accounts)
• HRA (Health Reimbursement Arraignment)
• Group Term Life Insurance
  
• Cafeteria Plans
• 401(k) (Retirement Plans)
  

The housing allowance and expense reimbursement plans are relatively easy to set up; however, benefits such as HSAs, HRAs, cafeteria plans, retirements, etc. should be handled by tax professionals to ensure they are set up properly.

Note: A housing allowance is only available to dual-status ministers.

“Dual Status” is what the IRS considers ministers who pass their 5 point test. They are considered an employee of the church for federal income purposes and self-employed for Social Security and Medicare purposes. The church does not withhold or match Social Security and Medicare taxes on a qualified minister.

An Accountable Reimbursement Plan is a must for all staff. It is a tax-free benefit that can be very beneficial for your employees....especially your minister which can incur travel expenses in their ministry duties. The ability to reimburse those travel expenses and other ministry-related expenses tax-free it a very important part of a minister's compensation package. See more on a accountable reimbursement policy.

Health insurance can also be a great fringe benefit for your staff. This benefit is usually a tax-free benefit if the church pays for the premiums directly to the insurance carrier.

However, with the initiation of ACA (Affordable Care Act) churches and nonprofits should be aware of the rules and restrictions of the law and ensure their health insurance benefit is a "qualified healthcare plan".

NOTE: a health sharing ministry is not considered insurance when it comes to providing health insurance for your employees! If you are paying for a "plan" such as Christian Healthcare Ministry or Samaritan Ministries or reimbursing your minister for it...it is taxable income for them and must be reported in box 1 of their W-2! 

Group "nondiscriminatory" life insurance is another great tax-free benefit. However, keep in mind, only the first $50,000 of coverage is tax-free. Over $50,000 becomes taxable.

Disability insurance can be another great tax-free benefit. Staff should be aware though that if the plan is set up as a tax free benefit...the disability benefits paid to them through that plan are taxable.

HSAs and HRAs are a great fringe benefit as well. AND as of December 13, 2016...we can once again offer HRAs without being in danger of huge fines! See the Ministry CPA post on:  Qualified Small Employer HRAs

Another desired fringe benefit for ministers is a "Social Security Allowance". This is a great benefit because all ministers that have not opted out of Social Security must pay self-employment (Social Security and Medicare) taxes. A Social Security Allowance can offset some or all of that additional cost. However, keep in mind, that all payments are taxable and must be included in the minister's reportable wages.