![]() ![]() In lieu of substantiation of actual expenses, churches can use IRS-approved per diems. Substantiation-Employees must substantiate, within a reasonable period of time, the amount, time, use, and ministry purpose of the allowance or expense payment.Any advance payments must be reasonably related to ministry expenses that a worker is expected to incur. Ministry connection-The reimbursements, advances, or allowances provided to employees under the plan must be for work-related expenses that would be deductible by the employee if claimed as a deductible ministry expense on the their personal return.To be considered an accountable plan under federal tax provisions, a reimbursement or other employee expense allowance arrangement must comply with these requirements: However, churches must establish a travel and professional expense program using an accountable plan to maintain tax-free status of the amounts paid. Internal Revenue Service Publication 463, Travel, Entertainment, Gift, and Car Expenses, defines qualified tax-free travel expenses as the ordinary and necessary expenses of traveling away from home for ministry, profession, or job. Much documentation is required to substantiate expense reimbursements for employees taking ministry trips and can result in the church having to add such expenses to employee income and apply appropriate employment taxes to those amounts. Failure to meet these new rules would required you to report your reimbursed expenses as taxable income.Īccountable reimbursement plans are one of the most misunderstood areas for church administrators. In substantiating your expenses to the church, you must provide them receipts or documents indicating the amount, business use, number of business miles, time, date, business purpose and name.Ī qualified reimbursement plan on a per diem or other fixed allowance basis that is similar in form to the allowance specified by the federal government isĪ permissible arrangement providing that the expenses are substantiated.Īll reimbursed ministry expenses under the qualifying reimbursement planĪre excludable from taxable income in full to the extent of the reimbursement. All reimbursed expenses must be substantiated to the church with receipts or other documentation and all excess allowances must be returned to the church that are not used for ministry expenses. ![]() The new rules for qualified reimbursement arrangement plans would require that the reimbursements must not exceed the expenses incurred. These expenses could be treated as miscellaneous itemized deductions, which are subject to two-percent of adjusted gross income and may produce no tax benefit unless your itemized deductions exceed the standard deductions. In this example, all the reimbursements would be reported as taxable income, which may increase the tax liability. Any expenses incurred on behalf of the ministry to the church will qualify.Ī non-qualified/allowance plan is a reimbursement arrangement which does not require clergy to substantiate the expenses to the church and also give them the right to retain any amount in excess of the substantiated expenses. The church reimbursement policy should include the following, but not limited to: office supplies, religious material, subscriptions and paperbacks, meals, entertainment, seminars, dues and memberships, library, educational expenses, camps, legal and professional services, gifts, auto, travel, etc. Clergy are allowed to exclude all reimbursed expenses from their reportable income. Your church should establish an accountable reimbursement policy.
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