Hello! I am working with a member of the clergy on their insurance and have a few questions regarding the Premium Tax Credit (Form 8962):
Thank you in advance!
Anna
In order to get a premium tax credit, the insured person must pay for the health insurance themselves. The PTC is a subsidy to help pay the cost of the health insurance. For clergy, the housing allowance is not added to their income when determining the amount of PTC.
If the taxpayer received the PTC, they would receive a 1095-A form at the end of the year that would compute the amount of PTC to be reimbursed if it was overpaid.
In your example, none of this would apply because the church is paying for the insurance.
#3. Of course, that's true for everyone.
#2. Correct. The church and pastor have two options.
a. The church pays for a small business plan. It can have co-pays, or the church only pays part of the premiums and deducts the rest pre-tax, or the church can pay the entire premium. But if the church pays for a small business health insurance plan for its employees, it must follow all the rules in publication 15-B regarding fringe benefits -- such as, all employees must be offered the same fringe benefit package. This is sometimes undesirable, since a denomination may have an expectation of providing health coverage to pastors but they may not want to or afford to cover their administrative staff.
b. Or, the pastor buys their own marketplace plan with after-tax dollars and claims the PTC. The church can give the pastor a raise (such as because they stop paying for the small business plan and pass that on to the pastor) but the raise must be included in their taxable income.
The church must not pay for the marketplace plan. If I recall correctly, the fine for doing that is $100 per day.
#1. The minister's housing allowance is a powerful but complex issue. If you are a tax provider taking on your first pastor, you should do a lot of research to make sure you get it right, or maybe send them to a provider who handles more clergy. I don't know if the housing allowance counts as income against the PTC, that would be covered under the PTC regulations rather than the regulations about the housing allowance, and while I have made myself something of an expert regarding clergy taxes, I know nothing about the PTC and leave that to others.
However, be aware the housing allowance is exempt from income but is still subject to SE tax, if that influences your opinion.
I don't have time to research the PTC and housing allowance, but this is an extremely useful resource for clergy tax matters.
http://www.ecfa.org/PDF/Ministers_Taxes_Made_Easy_2020.pdf
ECFA is a multi-denominational organization that focuses on financial accountability for churches including taxes. Your client's denomination may already be a member which would give him access to certain documents, or they could purchase a membership, especially if the church has other financial concerns.