The IRS knows full well how lax a lot of employees are about documenting their expenses—and how often churches let it slide.
We have collected a handful of recent questions that may be helpful to your church.
Q. If an employee uses a personal credit card for a ministry purchase, is there a time limit for reimbursement?
A. Most churches stick with a flat-out 60-day rule: Expenses such as these will be reimbursed up to 60 days from the time the charge was incurred or paid for by the employee, but not beyond that.
Q. What is considered adequate substantiation for mileage reimbursement?
A. Technically, the employee has to maintain a log or record of some type; the format should be mutually agreed upon in advance. To reimburse individual trips, we recommend a printout from something like Google Maps noting the miles traveled.
Q. An employee has a credit card bill showing a transaction; does he still have to turn in a formal expense report?
A. Absolutely—there needs to be a ministry reason noted for the expense, which a credit card bill will rarely make clear.
Q. We bought a $10 gift card for an employee as a way of expressing appreciation for volunteering for VBS. Does that low dollar amount mean we can forget about it?
A. A gift card to an employee is considered cash or cash-equivalent reward and is subject to tax regardless of the dollar amount. There’s no de minimis qualification in this area as far as the IRS is concerned.
Q. We’re paying for an employee’s temporary housing while he finds permanent accommodations near his new job. How do we handle this tax-wise?
A. Temporary housing is always taxable.
Q. If an employee’s spouse travels with her but no extra expenses are incurred because of it, are there issues of extra compensation? In our example, the hotel rate that the employee booked was
the same for one person as for two.
A. No, it’s not considered compensation as long as no additional expenses were incurred at all. For example, an employee who rents a car may carry someone along, or a single-bed hotel room might be shared. If an additional plane seat is purchased though, or a double room needs to be reserved, then the added expense becomes compensation.
Q. We have a modest flat rate that we use when we reimburse staff for ministry travel. Is there a problem with it being a flat rate and not calculated by specific mileage.?
A. Your flat rate or gas allowance may be considered taxable income under a non-accountable plan. While mileage reimbursement would be non-taxable under an accountable plan.
Q. At our end-of-the-year fundraiser, those employees who pledge a certain amount have their names put into a raffle to receive a gift card. Do these gift cards still need to be treated as compensation?
A. Unfortunately, if this is a raffle that is confined to your employees, yes. The key is that it’s an incentive. If you remove the incentive, or it’s truly a random event with people outside the church able to participate, you might be able to convince the IRS that it is not compensation.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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