While working for a Church, you may have to pay some expenses out of your own pocket. This could be things like paying for gas while you drive to a distant location, or paying for office supplies, or paying for laundering ceremonial garments. Regardless of the expense, when you get reimbursed by your Church, you should be aware that how you get reimbursed can have a big impact on your taxes.
Let’s say you drove 500 miles. You have to submit a mileage log detailing your travel, and then your church pays you for those miles at the current government rate. This arrangement is called an “Accountable Plan”. In an Accountable Plan, you are only paid for actual expenses. Because all of the money you received was used to pay expenses, you do not have to claim any additional income on your taxes. You also do not get a deduction of any of the mileage, since it was all paid by the Church, not you.
In another example, let’s say the Church pays you a yearly $500 auto allowance for mileage, regardless of how many miles you actually drive. This scenario is called a “Non-Accountable Plan”. In this scenario, that $500 now becomes taxable income for you. You also get to deduct any mileage you drive as an expense.
Generally speaking, Accountable Plans are more tax-effective for Ministers than Non-Accountable Plans, but they also require more documentation. Non-Accountable plans are much simpler, but the Minister gets taxed on the income and may not get to use all of the expenses as deductions on their tax return.
Ultimately, it will be up to your Church to determine what type of reimbursement plan they provide, but if you are given the choice, an Accountable Plan is more beneficial in regards to your 1040 tax return.
If you are in charge of payroll and would like assistance with setting up accountable reimbursement plans or managing your payroll, Clergy Financial is here to help. Just visit our website at https://www.clergytaxnet.com/services/church-payroll/
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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