Medical Reimbursement Policy

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 Plans are funded solely through salary reduction.

2.      A Medical Reimbursement Plan is a “use it or lose it” plan.  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.

6.      Contributions are limited.  $3,050 for 2023 and $3,200 for 2024


The benefits of a Medical Reimbursement Plan?

1.      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. 

Note to churches:
There are two paragraphs numbered “6”.  The church must choose which paragraph 6 to use.  You can have a two-and-a-half-month grace period OR you can carry forward up to $610 but you cannot offer both.  This is an employer decision not an employee decision so you cannot offer your employee(s) the choice.


“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 (MRP). 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”.

  • Participation is voluntary, not mandatory.

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

  • Employees wishing to participate must fill out a Voluntary Salary Reduction form (attached) and turn it into the bookkeeping office by December 1st.
  • The salary reduction will apply beginning January 1st of the year following receipt of your Voluntary Salary Reduction form and ending December 31st or the last day of employment, whichever comes first.
  • 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.

  • Only out-of-pocket expenses that are not covered by a medical plan are eligible for reimbursement.
  • 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).
  • 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.      The Medical Reimbursement Plan will be a use it or lose it plan.

  • You will lose any excess funds left in your Medical Reimbursement Plan at the end of the plan term.
  • Careful thought should be given not to overestimate the amount you wish to set aside for Medical Reimbursements as any funds left over cannot be redesignated as salary.
  • You may wish to buy eyeglasses or catch up on dental work prior to the plan end rather than lose any left-over funds.

5.     The Medical Reimbursement Plan is limited to $3,200 for 2024 ($3,050 for 2022).

Paragraph 6 Option 1
6.      The Medical Reimbursement Plan will include a carry forward to the following year.

  • Up to $610 of left-over funds in your Medical Reimbursement Plan will be carried forward to the following year’s plan.
  • The amount carried forward will be the smaller of $610 or the amount remaining in your Medical Reimbursement Plan as of December 31st.
  • Any amounts over $610 remaining in your Medical Reimbursement Plan as of December 31st will be forfeited.

Paragraph 6 Option 2

7.      The Medical Reimbursement Plan will include a two-and-a-half-month grace period.

  • Funds remaining in your Medical Reimbursement Plan as of December 31st will be available until March 15th.
  • You may be reimbursed for expenses from your previous year’s plan if funds are available and receipts and documentation are submitted by March 15th.
  • You may be reimbursed from your previous year’s plan for expenses incurred through March 15th.


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

Option 1:  I further understand that if I do not use all of the funds, I will lose whatever funds are “left over” when the reimbursement period ends.  ________Initial

Option 2:  I further understand that only $610 of any remaining funds will be carried forward to the following year and that on December 31st I will lose whatever funds exceed $610.  _________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

  • Prescription medicines or insulin.
  • Nonprescription medicines (including pain relievers, antacids, cold medicines and allergy drugs) obtained with a prescription.
  • 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).
  • 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 20 cents a mile for 2019. Add parking and tolls to the amount you claim under either method.
  • The amount you can deduct for qualified long-term care insurance contracts (as defined in Pub. 502) depends on the age, at the end of the calendar year, or the person for whom the premiums were paid.  See chart below.
Age before the end of the tax year Maximum deduction 2023 Maximum deduction 2024
40 or younger 480 470
More than 40 but not more than 60 890 880
More than 50 but not more than 60 1790 1760
More than 60 but not more than 70 4770 4710
More than 70 5960 5880

Examples of Medical and Dental Payments You May Not Deduct

  • Insurance premiums for medical and dental care.
  • 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.
  • Medicare parts B & D.
  • 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 drugs, 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 $4,400 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 $4,400 during the tax year. You may include on line 1 any medical and dental expenses you paid during the tax year for your mother.


Attention: Tax Law is subject to interpretation. Please be advised that the material contained on this Web site is for information only and is not intended to be a substitute for professional legal advice. The Stewardship Services Foundation endeavors to update the information on this site on a regular basis, but cannot guarantee its accuracy at all times.