What is a Section 125 Plan?

A Section 125 Plan allows the church to deduct the clergy’s medical, dental and/or vision contributions from the clergy’s paycheck on a pre-tax basis, thereby reducing the clergy’s taxable income.  The TAC Section 125 Plan is a premium-only plan; it does not include out-of-pocket medical or childcare expenses. 

  • A Church Section 125 Plan should be adopted prior to January 1 to be effective as of January 1 of the following year. Once a church Section 125 Plan has been set up and adopted by the church’s Administrative Council, the Section 125 Plan will carry forward each year – it only needs to be adopted one time.

  • Not all churches deduct the clergy’s Group Health amounts for the clergy’s medical, dental and/or vision plans from the pastor’s paycheck (the church pays both the church and clergy portions of Group Health). 

  • If the church does not actually do a payroll deduction for the clergy’s medical, dental and/or vision contributions, the church would not need to set up a Section 125 Plan and the clergy would not designate a Section 125 Plan amount on the clergy’s salary sheet.    

  • Once you choose your pre-tax contribution amount for the year, you cannot change or suspend your pretax contributions during the plan year unless you have a qualifying change in family status (like marriage, divorce, birth of a child, etc.).

How can my church set up a Section 125 Plan?

Church administrators can contact Ella Welch at Alera Group, the TAC Benefits Consultants, at 469-635-8411 or for assistance.