Under 2017 law, it was a significant income tax advantage for a minister to have the employing church reimburse business expenses related to the ministry of the church. The reimbursements needed to meet the requirements of an accountable expense reimbursement plan. Simply stated, a tax-free expense reimbursement put an entire dollar back in the minister’s pocket whereas a deduction on Schedule A only put a fraction of the dollar in the minister’s pocket.
Now 2018 brings us to a new world for a minister’s unreimbursed business expenses. The employer-related business expenses that are not reimbursed are simply not deductible at all for income tax purposes. This is because the section of Schedule A has been totally eliminated—the Miscellaneous Deductions section.
So, the importance of a church’s reimbursement of a minister’s church-related business expenses is vital. Without a tax-free reimbursement under an accountable plan, the minister does not recoup any of these expenses.
What to do:
- Be sure the church has a sound accountable expense reimbursement plan.
- Follow the provisions in the accountable expense reimbursement plan, including being sure that (a) there is a business purpose for the expenses, (b) the expenses are substantiated in a timely manner, and (c) there has been a proper return of excess reimbursements.
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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