Depending on how your Church reimburses you, it may or may not impact your taxes. Reimbursement plans generally fall into one of two categories, accountable or non-accountable.
Under an “accountable” plan, the Church only pays your expense, nothing more and nothing less. Usually you would either have to give them receipts, or you would have to use a Church credit card to pay for expenses. Because only your ministry-related expenses are getting paid and you aren’t keeping any of the money for yourself, income under an accountable plan is not taxable. You also don’t get to deduct any of the expenses, since you didn’t pay them.
Under a “non-accountable” plan, the Church pays you a set allowance or stipend for expenses. For example, a church gives you $500 at the beginning of the year for your mileage expenses. This $500 would be considered taxable income since it doesn’t correspond to any expense. However, you also would get to deduct any ministry-related mileage expenses you paid out of your own pocket on Schedule SE.
Overall, accountable plans are generally better for clergy. You get paid dollar-for-dollar for your expenses. Non-accountable plans are better than no reimbursement, but they do result in more taxable income on your return.
Do you want to read more details about reimbursement plans? You can order 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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