Mileage Reimbursement/Auto Allowance
A church and its pastor(s) can work together to maximize the reimbursement of professional expenses, which are typically paid out–of–pocket with after–tax wages by the pastor. These expenses can include mileage, cost of periodicals, books, professional supplies, conferences, etc.
Using methods that meet the IRS requirement for “Accountable Reimbursement” plans, a pastor can receive reimbursements which are exempt from all taxes (federal and social security).
Auto expense and other ministry related travel are a business expense for the church and are not part of salary or benefits. An appropriate place for this line item in the church budget is under church operating expenses.
Auto reimbursement plans or auto allowances should be sufficient to cover all church-related expenses. The IRS is increasingly requiring accurate records (including odometer readings, mileage, date and time, etc.) to support auto expenses claimed as church-related travel. A paper spreadsheet, or even a phone app, like MileBug, can be used to track mileage.
Expenses for automobiles may be handled in one of the three following ways.
1) Churches can purchase or lease a car and assume the total automobile expense. The pastor, in order to comply with tax regulations, is required to report and to reimburse the church for personal use of the vehicle.
2) The church can reimburse the actual miles driven at a specific rate per mile. It is appropriate to use the IRS standard mileage rate for operating an auto for business. The pastor submits a monthly expense sheet and reimbursement is based on the actual miles driven for church business. An annual budget figure for this type of reimbursement program is usually based on a review of the work–related miles driven by a church professional in the previous year. The actual annual pay–out may be more or less based on the actual requirements for travel in each year.
3) The church can pay a pre–determined dollar amount on a monthly basis in the form of an auto allowance. An auto allowance is considered taxable income and it should appear as part of wages on either W-2 Forms. In order to deduct some or all of church–related auto expenses under an allowance arrangement, pastors must file form 2106 when filing their federal tax returns. Clergy filing under self–employed status can deduct some of their auto expenses using Schedule C and Form 4562 (Depreciation & Amortization).
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.
For more information or if you need additional assistance, please use the contact information below.
Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (763) 425-8778
Fax: (888) 876-5101