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Tax Information

Reimbursements vs. Allowances

These are not compensation.

Both reimbursements and allowances cover the costs associated with providing ministerial services to a congregation or other entity. These should not be confused with or seen as a part of compensation. These expenses are legitimate expenditures that add value to the congregation and enable members of the clergy to provide the pastoral care and religious leadership that is expected of them.

REIMBURSEMENTS

An accountable reimbursement plan should be established by a congregation and included in their annual budget as a line item. As the various types of expenditures will vary from time-totime and year-to-year, it is recommended that the church’s Finance Committee focus on the total amount allotted for reimbursable expenditures rather than seeking to control individual expense categories (such as travel, books, and supplies).

Accountability and documentation

As the name implies, an accountable reimbursement plan means that the person seeking to be reimbursed is accountable to the church for providing adequate support according to guidelines that are in keeping with Federal Income Tax standards and/or locally established guidelines.

It is the responsibility of members of the clergy to provide adequate documentation for all reimbursements. Such documentation should include the following: the date of the expenditure, the amount of the expenditure (accompanied by a receipt if possible), and the business purpose of the expenditure. Current Federal Tax guidelines do not require receipts for expenditures less than $75.

Reimbursement for business mileage

The Federal Government annually establishes the rate at which business miles are to be reimbursed. This rate is expressed as so many cents per mile. The most difficult area for many members of the clergy is to account for the un-reimbursable miles known as commuting miles. The miles between your residence and the church are considered to be commuting miles. However, in the case of a multiple-point charge, driving between churches is considered to be business miles and reimbursable.

Tax consequences of reimbursements

Accountable reimbursements that are made in accordance within the guidelines are not considered to be income to the clergy and are therefore not reported as such.

Examples of appropriate reimbursable expenditures

Here is a partial list of commonly reimbursed expenses for clergy: business mileage, office supplies, continuing education expenses, periodicals, books, cleaning of vestments, businessrelated meals.

Ownership

It should be noted that any non-expendable items, such as cell phones or computers, that are paid for under an accountable reimbursement plan are the property of the church.

ALLOWANCES

An allowance is a sum of money paid to a pastor to cover the cost of estimated business expenses such as business mileage and other business expenses.

Accountability and documentation

An allowance is paid without regard to any requirement to document expenses to the church. Though it may be higher or lower than actual incurred expenses there is no need or requirement to provide any documentation to the church.

Tax consequences of allowances

Although the allowance is paid to provide for legitimate business expenses, it is to be included in the compensation figure reported in Box 1 of the W-2 provided to you.

The pastor may deduct business expenses on Federal Form 2106. However, to do so, you must qualify as an itemizer and be able to use Schedule “A.” Also 2% of the total of the business expenses are lost as a deduction.

 
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