Most pastors and local church treasurers have become very familiar with the do’s and don’ts of accountable reimbursement plans. However, there are some issues that arise occasionally which suggest that we need to be reminded of some of the regulations governing these plans. In addition, we have new people in our midst from time to time so a review of some of the most common misunderstandings seems to be in order.
The #1 most common misunderstanding concerns when expenses must be submitted for reimbursement. The IRS requires that all substantiation of expenses be submitted within 60 days of the expense being incurred. Reimbursement is not required within 60 days—only submission of the substantiation of the expense. Sometimes the expenses submitted may exceed the amount available for payment of reimbursements at that time. In that case, the unused reimbursable amount may be carried forward and paid at a later time.
Another issue is how expenses must be substantiated. The IRS requires an adequate accounting by the employee and the maintenance of good records by the employer. In other words, the employee must account to the employer in the same manner that would be required if you were accounting to the IRS. That means that every reimbursed expense must have a clear business purpose, including the Who, When, Where, What and Why it is a “business” expense. Again, the IRS requires actual receipts for any expense over $75. The church may use this figure or set a lower limit. (The Conference requires receipts for any expense of $25 or more, and requests receipts, if available, for all expenses.) Additionally, receipts are required for all lodging expenses, regardless of amount. The church should be given the originals of receipts and written documentation, including mileage logs, and the staff person should keep a copy of what has been submitted for reimbursement.
Who should review the expenses for propriety is another question that sometimes arises. There is no one correct answer to this question. It might be someone designated by the Staff-Parish Relations Committee. It is important for it to be someone with credibility and knowledge of what is and is not an appropriate business expense. Hopefully whoever reviews the pastor’s expenses will be someone who understands that the pastor’s “business” expenses include those that relate to participation in the connectional church.
A frequently asked question is if the church can increase the amount available to reimburse business expenses. The answer is, “yes” if the church has the necessary funds. However, no funds may be shifted from salary to the accountable reimbursement amount.
The biggest “no-no” of all is to try to pay out to the staff person any funds left unused at yearend. To do so negates the entire accountable reimbursements for the entire year, and the total amount of all reimbursements for the year must then be included in the salary reported on the Form W-2! Don’t even think about trying to find some creative way to do it!!!
Much, much more information is available at www.gcfa.org/taxpacket.html