Clergy Tax Facts

Clergy Professional Reimbursement Plans

Your church should establish a full accountable reimbursement/voucher policy. You are allowed to exclude all reimbursed/voucher expenses from your reportable income. Your reimbursement/voucher policy should include the following, but not limited to: office supplies, religious material, subscriptions and paperbacks, meals, entertainment, seminars, dues and memberships, library, educational expenses, camps, legal and professional services, gifts, auto, travel, etc. Any expenses you undergo on behalf of your service to the church qualify.

Reimbursed business expenses are excludable from gross income and is now only available under a qualified reimbursement arrangement. If you don't have a qualified plan or do not comply with it, all reimbursements may be included in taxable income.

NONACCOUNTABLE REIMBURSEMENT PLANS

A non-qualified/allowance plan is a reimbursement arrangement which does not require you to substantiate the expenses to the church/employer and also give you the right to retain any amount in excess of the substantiated expenses. In this example, all the reimbursements would be reported as taxable income, which may increase your tax liability. Under current law, most allowance plans would fail under this arrangement which would require you to report those amounts as taxable income. These expenses are treated as miscellaneous itemized deductions, which are subject to two-percent of adjusted gross income and may produce no tax benefit unless your itemized deductions exceed the standard deductions.

ACCOUNTABLE REIMBURSEMENT PLANS

The new rules for qualified reimbursement arrangement plans would require that the reimbursements must not exceed the expenses incurred. All reimbursed expenses must be substantiated to the church/employer with receipts or other documentation and all excess allowances must be returned to the church/employer that are not used for business expenses.

In substantiating your expenses to the church/employer, you must provide them receipts or documents indicating the amount, business use, number of business miles, time, date, business purpose and name of client.

A qualified reimbursement plan on a per diem or other fixed allowance basis that is similar in form to the allowance specified by the federal government is a permissible arrangement providing that the expenses are substantiated.

All reimbursed business expenses under the new qualifying reimbursement plan are excludable from taxable income in full to the extent of the reimbursement. Failure to meet these new rules would required you to report your reimbursed expenses as taxable income.