If your Church is paying for your ministry-related expenses, it is important to know if you are being paid under an Accountable plan or a Non-Accountable plan. It has a huge impact on your 1040 taxes.
Under an Accountable plan, you are reimbursed for expenses. If you go out and buy a $10 book, you give the receipt to the Church and they reimburse you the $10. Another way of doing an accountable plan is by using a Church credit card. When you use a church credit card, the reimbursement is instantaneous.
Under a Non-Accountable plan, the Church pays you a set amount of money that does not directly relate to an expense. For example, the Church might give you $1,000 at the beginning of the year to use for ministry expenses. Or the Church might give you a monthly allowance of $100 for auto expenses. In either case, the amount of the money does not vary based on how much expense you have.
The big difference on your tax return?
Accountable plan: Income is not taxable, reimbursed expenses are not deductible.
Non-Accountable plan: Income is taxable, expenses may be deductible on Schedule SE.
Do you have more questions about how reimbursement or allowance plans work? Does your church need helping setting up a plan or writing a policy for it? Clergy Financial Resources is here to serve. Visit our website at https://www.clergytaxnet.com/resources/proadvisor/ to set up a Pro Advisor meeting today or visit https://www.clergytaxnet.com/services/church-hr-support/ for HR questions.
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