Adopting an accountable reimbursement plan

Adopting an accountable reimbursement plan

A frequent topic of discussion I have with pastors, church leaders and treasurers concerns reimbursements for certain expenses of the pastor. Frequently, those discussions end up revealing improper or unlawful practices on the part of the church that must be corrected. This is definitely one of those “But we’ve always done it that way” conversations that must come to an end.

The Tax Cut and Jobs Act of 2017 fundamentally changed certain reimbursement practices that have gone on in some churches for decades. I hear many tales of pastors who request reimbursements for “ministry expenses” without providing any receipts or other documentation of their expenses. This is referred to as a nonaccountable reimbursement plan, and these payments are now prohibited. Failure to include nonaccountable reimbursements in taxable wages on Form W-2 or in gross compensation on Form 1099-MISC may land both church and pastor in trouble with the IRS.

The church should adopt an “accountable reimbursement plan” that requires receipts for authorized/allowable expenses to be turned in to the treasurer before any reimbursements are paid. Receipts must be turned in within 60 days of incurring the expense. It is possible to add a monthly allowance to the pastor’s pay in advance of the expenses, but if the pastor cannot document the use of 100 percent of his allowance at month-end, the unused balance must be returned or counted as taxable wages for that month. Poorly monitored, a prepaid allowance will create more problems than it solves.

Additionally, there are a number of expenses the church cannot reimburse, primarily payments made by the pastor for personal items such as life, disability and health insurance, memberships in local fitness or golf clubs, household expenses such as food and clothing, laundry and dry cleaning, meals and entertainment, or vacations that were not primarily ministry-related. The church cannot exclude from the pastor’s income a “home office allowance” on top of the regular housing allowance it provides.

If the church is reimbursing the pastor for ministry use of his personal auto, it should pay $.58 per mile for all documented ministry miles. This requires the pastor to keep and provide detailed mileage logs, but cannot include “commuting” mileage from home to church. The pastor cannot receive both paid mileage and reimbursements for gas, oil, insurance or maintenance expenses. The federal mileage rate includes all expenses connected to operating a personal auto for business purposes.

Churches must never lose sight of their civil responsibilities as non-profit corporations. The treasurer or administrator bears responsibility for approving reimbursements, and must disallow those that are not documented or permissible. To this end, there must be well-written policies and procedures covering reimbursable expenses, including required submission of receipts and other money-handling matters in general.

For more information on reimbursable expenses for pastors and others in the church, or sample policies and procedures, please e-mail hrcc@csbc.com or call 559-256-0858.

This Convention serves our culturally diverse congregations as we fulfill the Great Commandment and the Great Commission.