Sabbaticals and Compensation
Clergy members are among the professionals who are commonly given an opportunity to take a periodic break labelled as a “Sabbatical” after a a number of years of ministry service to their church.
With the spiritual and emotional demands that often come with pastoring a church, it is indeed a good practice for churches to develop a Sabbatical policy to help prevent ministry burnout and to provide a work environment in which a minister is motivated to remain committed for the long term.
Ministry Sabbaticals often vary greatly in their activities. Churches often work with their minister to create a Sabbatical Plan which outlines which activities will be included. Those activities may involve attending a pastoral conference, visiting other churches to learn about their ministry programs, spending contemplative time at a retreat center, engaging in a short-term missions project, or enjoying extended time of recreation with family.
The plan often consider how the church can help fund their pastor’s Sabbatical, as well. In funding a Sabbatical, churches should be careful to ensure they are remaining compliant with all relevant tax laws.
Frequently church leaders mistakenly think of Sabbatical costs as falling under a separate tax category. In other words, the thinking is that if the pastor is going on an approved Sabbatical, then the church can pay or reimburse any costs toward the Sabbatical without any tax implications whatsoever.
However, the IRS does not recognize a separate taxation category for activities labelled as “Sabbatical.” Instead, the same analysis that would normally govern any kind of payment to the minister continues to apply.
The upshot of this is that Sabbatical costs usually fall into at least two categories: first, legitimate business expenses that can be reimbursed according to an accountable reimbursement plan; and second, compensation that must be reported on the minister’s Form W2.
Generally speaking, any costs that would otherwise qualify as legitimate business expenses under a church’s properly approved accountable reimbursement plan can also be paid by the church, or reimbursed by the church, so long as they are properly documented. These kinds of expenses may include Sabbatical activities like attending professional conferences, visiting other churches to learn from their programs, and short-term missions projects. However, it is very important to note that other costs, especially those that would otherwise be the equivalent of a vacation for the minister, must be included as additional compensation on the minister’s Form W2 if the church pays for them. This is often overlooked by churches who think of a Sabbatical as a separate payment category. The IRS recognizes no such separation.
Churches sometimes pay for the minister’s spouse or children traveling with the minister during a Sabbatical. These costs are most likely to be classified as taxable compensation by the IRS, unless the family member is also a minister of that church.
A church or minister should consult a tax professional for assistance in determining whether a specific Sabbatical cost amounts to taxable income for the minister.
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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