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?
2024 Clergy Section 125 Plan Documents
Section 125 Plan Clergy Salary Reduction Agreement (must be completed and provided to your church payroll administrator prior to the start of the Section 125 Plan year).
How do I determine my clergy GHB Section 125 Plan payroll deduction amounts? Download the TAC 2024 Pension and Group Health Benefits Calculator.