If you are working as a pastor or minister, you probably have some expenses. They may be things like religious supplies, specialty clothing, or auto expenses. Some churches are able to reimburse these expenses, but take care; the way you structure these reimbursements has a big impact on your income taxes.
There are two basic ways to reimburse clergy expenses- accountable and non-accountable.
Under an “Accountable” reimbursement plan, your Church pays the exact amount of your expense. Because they are paying your expense for you, you do not need to include it as taxable income. You also do not get to deduct anything, since everything was paid for you. If for some reason the church actually pays you more than your incurred expenses, then the excess would be considered taxable income.
Under a “Non-Accountable” reimbursement plan, your Church pays you an amount that does not correspond to the amount of your expenses. For example, if your Church pays you $500 a month for utilities but never asks for any documentation and never asks for any of the money back if your bills are less than that, then you have a non-accountable plan. All payments received under a non-accountable plan are considered taxable income, but you then get to deduct the expenses on schedule SE.
In general, accountable is more beneficial to the pastor, because it is a 1:1 reimbursement of expenses, but it is work for the Church because it requires setting up an accountable expense reimbursement plan. Under a non-accountable plan, the pastor must pay taxes on the reimbursement and the deductions may not be enough to make up for the additional taxes. However, a non-accountable plan is less paperwork and can help churches that may not have the budget to fully reimburse all expenses.
If your Church is interested in setting up a reimbursement plan, HR policy, or document customization, Clergy Financial Resources can help. Visit our HR Policy and Document Customization page for more details today!
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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