EXPENSE REIMBURSEMENT POLICY
If the church board or membership adopts a resolution such as the following, the church can reimburse the minister for ministerial and church expenses that he incurs. The minister will not have income taxes on it. Without such a resolution, the minister will have to report the reimbursements as for these expenses out of church funds without having such a resolution, the IRS may hold him liable for taxes on all funds from which he can draw.
The following resolution was adapted from Richard Hammar, Church & Clergy Tax Guide 1991.
RESOLVED, that First Pentecostal Church of Anytown, Inc. hereby adopt a reimbursement policy pursuant to income tax regulations 1.162-17 and 1.274-5(e), upon the following terms and conditions:
1. Any minister now or hereafter employed by the church shall be reimbursed for any ordinary and necessary business and professional expense incurred on behalf of the church, if the following conditions are satisfied: (1) the expenses are reasonable in amount; (2) the minister documents the amount, time, place, business purpose, and business relationship of each such expense with the same kinds of documentary evidence as would be required to support a deduction of the expense on the minister’s federal income tax return; (3) the minister documents such expenses by providing the church treasurer with an accounting of such expenses, no less frequently than monthly. In no event will an expense be reimbursed if substantiated more than 60 days
after the expense is paid or incurred by a minister.
2. The church shall not include in a minister’s W-2 form the amount of any business or professional expense properly substantiated and reimbursed according to the proceeding paragraph, and the minister should not report the amount of any such reimbursement as income on his Form 1040.
3. Any church reimbursement that exceeds the amount of business or professional expenses properly accounted for by a minister pursuant to this reimbursement policy must be returned to the church within 120 days after the associated expenses are paid or incurred by the minister.
4. If, for any reason, the church’s reimbursements are less than the amount of business and professional expenses properly substantiated by a minister, the church will report no part of the reimbursements on the minister’s W-2 form, and the minister may deduct the unreimbursed expenses as allowed by law.
5. Under no circumstances will the church reimburse a minister for business or professional expenses incurred on behalf of the church that are not properly substantiated according to this policy. Church and staff understand that this requirement is necessary to prevent the reimbursement plan from being classified as a “nonaccountable” plan.
6. All receipts and other documentary evidence used by a minister to substantiate the business nature and amount of his business and professional expenses incurred on behalf of the church shall be retained by the minister. The church may, at its election, make copies of such evidence.
7. Business use of a car will be reimbursed at the standard mileage rate currently allowed by the Internal Revenue Service. Under IRS regulations, commuting from home to church or office is personal use, not business use.
(The above material appeared in the July/September 1992 issue of FORWARD.)
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