29 Mar Payment of Employee Ministry Expenses
A church or religious organization is treated like any other employer as far as the tax rules on employee business expenses. The rules differ depending upon whether the expenses are paid through an accountable or non-accountable plan, and these plans determine whether the payment for these expenses is included in the employee’s income.
Accountable Reimbursement Plan
An arrangement that a church establishes to reimburse or advance employee ministry expenses will be an accountable plan if it:
- Involves a church connection,
- Requires the employee to substantiate expenses incurred and
- Requires the employee to return any excess amounts.
Employees must provide the organization with sufficient information to identify the specific ministry nature of each expense and to substantiate each element of an expenditure. It isn’t sufficient for an employee to aggregate expenses into broad categories such as travel or to report expenses through the use of non-descriptive terms such as miscellaneous business expenses. Both the substantiation and the return of excess amounts must occur within a reasonable time.
Employee ministry expenses reimbursed under an accountable plan are: (a) excluded from an employee’s gross income, (b) not required to be reported on the employee’s IRS Form W-2, Wage and Tax Statement, and (c) exempt from the withholding and payment of wages subject to FICA taxes and income tax withholdings.
Original content by clergyfinancial.com. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.