What is a… Medical Reimbursement Plan?

A Medical Reimbursement Plan can be an effective way for churches to provide medical care for their pastors and/or lay employees. In order for a plan to be a legitimate Medical Reimbursement Plan the following criteria must be followed:

1. Medical Reimbursement Plan’s are funded solely through salary reduction.

2. A Medical Reimbursement Plan is a “use it or loose it” plan. Any unused funds remaining in the plan as of January 31^st of the following year will be lost and re-absorbed back into the general fund. Unused funds cannot become salary or any other benefit.

3. Non-discrimination rules apply and the plan must be made available to all employees who are full-time (30 hours or more per week). Not all full-time employees are required to participate, but the plan should be available to all.

4. Medical Reimbursement Plan’s may only be used to reimburse employees for medical care for themselves, their spouse or their dependents.

5. Reimbursements can only be made for substantiated medical care expenses.

The benefits of an Medical Reimbursement Plan?

1. The church may reimburse the pastor/employee for medical insurance. This may be especially helpful if the medical insurance provider will not accept a church check for payment of premiums.

2. Distributions of Medical Reimbursement Plan funds to reimburse or pay an employee’s medical expenses are not taxable for federal, state or self-employment.

Here is a sample Medical Reimbursement Policy which your church can adopt as their own.

**“Name of your Organization”**

Medical Reimbursement Policy

In an effort to reduce the potential for added out-of-pocket health expenses to our full-time employees the “Name of your Organization” has seen fit to establish a Medical Reimbursement Plan. The Internal Revenue Service requires that certain conditions exist in order for a Medical Reimbursement plan to be considered non-taxable. The Medical Reimbursement plan of the “Name of your Organization” will be subject to the following conditions:

1. The Medical Reimbursement Plan will be available to all full-time employees of the “Name of your Organization”.

Ø Participation is voluntary, not mandatory.

2. The Medical Reimbursement Plan will be based on a voluntary salary reduction.

Ø Employees wishing to participate must fill out a Voluntary Salary Reduction form (attached) and turn it into the bookkeeping office by December 1^st.

Ø The salary reduction will apply beginning January 1^st of the year following receipt of your Voluntary Salary Reduction form and ending December 31^st or the last day of employment, whichever comes first.

Ø New employees must turn in a Voluntary Salary Reduction form prior to receiving their first paycheck.

3. You will be reimbursed for deductible out-of-pocket medical expenses.

Ø Only expenses that are not covered by a medical plan are eligible for reimbursement.

Ø You may be reimbursed for Medical and Dental payments that would be includible on Schedule A of your Federal return if you were not reimbursed under this plan. (See attached list of what is and what is not deductible).

Ø You CANNOT be reimbursed without turning in receipts. If you fail to obtain a receipt from your doctor, dentist or pharmacist, you will be unable to be reimbursed.

4. You will be reimbursed as the funds become available through your payroll reduction.

Ø If you elect to reduce your salary by $1300 a year so that you have $1300 available for Medical Reimbursements and you are paid year round, then $50 ($1300 divided by 26 pay periods) will be available to you for reimbursement each pay period.

· This means that if you request a $100 reimbursement on January 5^th and your first paycheck is written on January 7^th, then $50 will be reimbursed on January 7^th and $50 will be reimbursed on January 14^th.

· If you request a $100 reimbursement on January 18^th, and you have had no previous requests for reimbursement, then you will be reimbursed the full $100.

5. The Medical Reimbursement Plan will be a use it or loose it plan.

Ø You will loose any funds left in your Medical Reimbursement Plan after January 31^st of the following year.

· Careful thought should be given not to over estimate the amount you wish to set aside for Medical Reimbursements as any funds left over at the end of the year cannot be redesignated as salary.

· Although you will have until January 31^st of the following year to be reimbursed, you will only be reimbursed for substantiated expenses and services which occurred between January 1^st to December 31^st.

· You may wish to buy eyeglasses or catch up on dental work prior to December 31^st rather than loose any left over funds.

Here is a sample form for employees to fill out.

**“Name of your Organization”**

Request for Medical Reimbursement Plan

Voluntary Salary Reduction

Please set aside $_* of my salary for the calendar year of 20 for a Medical Reimbursement Plan. I understand that my salary for the calendar year will be reduced by the amount of $_* in order to make available funds for reimbursement of my deductible out-of-pocket Medical expenses.

___________________________________
Signature of Employee

I understand that participation in this program is not mandatory and I am participating voluntarily. ________
Initial

I also understand that I will not be reimbursed if I do not submit proper receipts or documentation. ________
Initial

I further understand that if I do not use all of the funds I will loose whatever funds are “left over” when the reimbursement period ends. ________
Initial

* These two (2) amounts are the same.

Here are the qualified Medical and Dental Expenses.

Medical and Dental Expenses

Examples of Medical and Dental Payments You May Deduct

· Insurance premiums for medical and dental care, including premiums for qualified long-term care contracts as defined in Pub. 502.

· Prescription medicines or insulin.

· Nonprescription medicines (including pain relievers, antacids, cold medicines and allergy drugs).

· Medical doctors, osteopathic doctors, dentists, eye doctors, podiatrists, chiropractors, psychiatrists, psychologists, physical therapists, occupational therapists, acupuncturists, and psychoanalysts (medical care only).

· Medical examinations, X-ray and laboratory services, insulin treatment, and whirlpool baths your doctor ordered.

· Nursing help (including your share of the employment taxes paid). If you paid someone to do both nursing and housework, you may deduct only the cost of the nursing help.

· Hospital care (including meals and lodging), clinic costs, and lab fees.

· Qualified long-term care services (see Pub. 502).

· The supplemental part of Medicare insurance (Medicare B).

· A program to stop smoking and for prescription medicines to alleviate nicotine withdrawal.

· Medical treatment at a center for drug or alcohol addiction.

· Medical aids such as eyeglasses, contact lenses, hearing aids, braces, crutches, wheelchairs, and guide dogs, including the cost of maintaining them.

· Surgery to improve vision including radial keratotomy or other laser eye surgery.

· Lodging expenses (but not meals) while away from home to receive medical care in a hospital or a medical care facility related to a hospital. No more than $50 a night for each eligible person.

· Ambulance service and other travel costs to get medical care. If you used your own car, you may claim what you spent for gas and oil to go to and from the place you received the care; or you may claim 19 cents a mile for 2008. Add parking and tolls to the amount you claim under either method.

Examples of Medical and Dental Payments You May Not Deduct

· The basic cost of Medicare insurance (Medicare A). If you were 65 or older but not entitled to social security benefits, you may deduct premiums you voluntarily paid for Medicare A coverage.

· Cosmetic surgery unless it was necessary to improve a deformity related to a congenital abnormality, an injury from an accident or trauma, or a disfiguring disease.

· Life insurance or income protection policies.

· The Medicare tax on your wages and tips or the Medicare tax paid as part of the self-employment tax or household employment taxes.

· Nursing care for a healthy baby.

· Illegal operations or drugs.

· Nonprescription vitamins and supplements.

· Travel your doctor told you to take for rest or a change.

· Funeral, burial, or cremation costs.

Whose Medical and Dental Expenses Can You Include?

You may include medical and dental bills you paid for:

· Yourself and your spouse.

· All dependents you claim on your return.

· Your child whom you do not claim as a dependent because of the rules explained in Pub. 501 for children of divorced or separated parents.

· Any person you could have claimed as a dependent on your return if that person had not received $3,400 or more of gross income or had not filed a joint return.

Example. You provided over half of your mother’s support but may not claim her as a dependent because she received wages of $3,400 during the tax year. You may include on line 1 any medical and dental expenses you paid during the tax year for your mother.