If your Church helps to pay your clergy expenses, how they pay you makes a big difference when it comes to filing your 1040 tax return.
Under an “accountable” plan, the Church only pays your exact expense. Either you submit receipts to them and they pay you the amount of the expense, or you use a church credit card and they pay off that card. Income received under an accountable plan is not taxable (since you didn’t keep any of it) but the expenses are also not deductible (since they were paid for you).
Under a “non-accountable” plan, the Church pays you a set amount of money that doesn’t correspond to any expense, and then you pay your expenses out of that. For example, if the church gives you flat $500 at the beginning of the year for your auto expenses, that is a non-accountable plan. Under a non-accountable plan, the $500 you received is considered taxable income and should be reported. You also potentially get to deduct your expenses on Schedule SE.
Both plans have unique advantages. Accountable plans are generally better for clergy. They result in full payment of clergy expenses and do not increase taxable income. Non-accountable plans are good for churches that don’t have the budget to pay all clergy expenses or the staff to administer reimbursements. Non-accountable plans also have less paperwork since the pastor does not need to submit receipts to the church.
Do you want to read more about reimbursement plans and clergy taxes? Consider ordering our clergy tax law short course at https://www.clergyfinancial.com/store/featured/clergy-tax-law-short-course.html.
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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