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| Intro
Salary Equity Social Sec Benefits Reimburse Employee Interim Supply SalaryComp Jobs Prayer
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BOOKS AND JOURNALS AUTOMOBILE EXPENSES Since the cost of operating a car on church business is a business expense and a car is required by the congregation for the performance of the ministry of the church, the congregation should be responsible for the full cost. It is important to understand that the cost of operating an automobile is not compensation; it is merely reimbursement for the expenses of doing the ministry of the church. The automobile reimbursement is an administrative expense of the congregation. The most effective way for a congregation to provide for the full cost of travel, is for the congregation to lease or purchase an automobile for the pastor's use. The congregation then provides for the upkeep of the auto, including gas, repairs and maintenance, and the pastor or AIM uses the auto exclusively for congregational business. However, that arrangement may not be possible for many congregations. Alternately, the congregation provides a reimbursement for the cost of using a pastor's or AIM's personal automobile. Your pastor or Associate in Ministry should keep a detailed records of all costs associated with a personal car used for church business (including insurance and depreciation). The congregation can then reimburse these costs based on the mileage driven in the course of the ministry. The IRS allowed business mileage reimbursement rate, beginning January 1, 2008, is $0.505 per mile. REIMBURSEMENTS and TAXABLE INCOME Pastors and associates in ministry report their business expenses to the congregation rather than to the IRS. Pastors who report their income taxes as employees (or who report as self-employed and are reclassified as employees by the IRS in a audit) avoid the limitations on the deductibility of employee business expenses. These include (1) the elimination of any deduction if the person cannot itemize deductions on Schedule A (85% of all taxpayers cannot), and (2) the deductibility of business expenses on Schedule A as an itemized expense only to the extent that these expenses exceed 2% of the adjusted gross income. The Deason allocation rule is avoided. Under this rule, pastors must reduce their business expense deduction by the percentage of their total compensation that consists of a tax-exempt housing allowance. The "80% limitation" that applies to the deductibility of business meals and entertainment expenses is avoided. Pastors who report their income as self-employed avoid the shock of being reclassified as an employee by the IRS in an audit. Many clergy who report their income as self-employed have been so reclassified by the IRS. The effect of this is to move their business expenses from Schedule C (where they are fully deductible) to Schedule A where the above limitations apply. An accountable reimbursement plan is one that, (1) reimburses only those business expenses that a pastor or other employee periodically substantiates as to the date, amount and business nature of each expense, and (2) requires that and "excess reimbursements" (e.g. advances) to be returned to the church. The IRS guidelines specify that a person's "accounting" or substantiation of his or her expenses, and the return of any excess reimbursements must occur within a "reasonable time." The reasonable time requirement may be satisfied in two ways. First, under the "fixed date method", business expenses will be deemed substantiated within a reasonable amount of time if done so within 60 days after the expenses are paid or incurred, and excess reimbursements will be deemed to have been returned within a reasonable time if done sowithin 120 days after the expenses are paid or incurred. Under the alternate "periodic statement method", a congregation gives the pastor or employee a periodic statement (not less than quarterly) setting forth the amount by which the congregation's reimbursements exceed the amount of business expenses substantiated by the pastor or employee, and requesting the pastor or employee to either substantiate the difference or return the excess to the congregation with 120 days of the statement. Expenses that are substantiated or returned within the 120 period satisfy the reasonable time requirement. How does a congregation implement an accountable reimbursement plan? By having the congregation council adopt an appropriate resolution containing the requirements summarized above. This resolution, when adopted, remains in effect until the Congregation Council votes to recind it. If such an accountable reimbursement plan is adopted, congregations may wish to combine book, auto and other allowances into one "professional expenses" line item on their budgets for clarity and simplicity. All substantiated business expenses could then be charged against one account. YEAR END REPORTING TO THE INTERNAL REVENUE SERVICE If, however, the congregation reimburses expenses on a flat rate basis (e.g. $200 or $300 per month automobile allowance) then these amounts must be included as income on W-2s or 1099s. Housing allowances, utilities allowances, furnishings allowances and continuing education are always excluded from the income reported. |
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ACCOUNTABLE REIMBURSEMENT POLICY The following resolution was duly adopted by the congregation council of _______________________ Lutheran Church at a regularly called meeting held on ________________________, a quorum being present: Whereas income tax regulations 1.162-17 and 1.274-5(e) provide that an employee "need not report on his tax return" expenses paid or incurred by him or her solely for the benefit of his/her employer for which he/she is required to account and does account to the employer and which are charged directly or indirectly to the employer; and Whereas income tax regulation 1.274-5(e) further provides that "an adequate accounting means the submission to the employer of a ... statement of expense or similar record maintained by the employee in which the information as to each element of expenditure (amount, time and place, business purpose, and business relationship) is recorded at or near the time of the expenditure, together with supporting documentary evidence, in a manner which conforms to the 'adequate records' requirements" set forth in the regulation; and Whereas ________________________ Lutheran Church desires to establish a reimbursement policy pursuant to regulations 1.162-17 and 1.274-5(e); therefore be it Resolved, that _________________________ Lutheran Church hereby adopts a reimbursement policy pursuant to income tax regulations 1.162-17 and 1.274-5(e), upon the following terms and conditions: 1. Any pastor called, or any person now or hereafter employed by ________________________ Lutheran 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 person incurring the expense documents the amount, time and 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 person's federal income tax return; and (3) the person 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 pastor, associate in ministry or employee. 2. The church shall not include in a pastor's or employee's W-2 form the amount of any business or professional expense properly substantiated and reimbursed according to the preceding paragraph, and these persons should not report the amount of and such reimbursement on his or her Form 1040. 3. Any church reimbursement that exceeds the amount of business or professional expenses properly accounted for pursuant to this reimbursement policy must be returned to the church within 120 days after the associated expenses are paid or incurred and shall not be retained by the pastor, associate in ministry or employee. 4. If, for any reason, the church's reimbursements are less than the amount of business and professional expenses properly substantiated by a pastor or other employee, the church will report no part of the reimbursements on the person's W-2, and the pastor or employee may deduct the unreimbursed expenses as allowed by law. 5. Under no circumstances will the church reimburse a pastor or other employee 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 our reimbursement plan from being classified as a "nonaccountable" plan. 6. All receipts and other documentary evidence used by a pastor or other employee to substantiate the business nature and amount of business expenses incurred on behalf of the church shall be retained by the church. The pastor or employee may, at his or her election, make copies of such evidence. |
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