The Importance of Reimbursing Ministerial Expenses Just Increased Exponentially

Under 2017 law, it was a significant income tax advantage for a minister to have the employing church reimburse business expenses related to the ministry of the church. The reimbursements needed to meet the requirements of an accountable expense reimbursement plan. Simply stated, a tax-free expense reimbursement put an entire dollar back in the minister’s pocket whereas a deduction on Schedule A only put a fraction of the dollar in the minister’s pocket.

Now 2018 brings us to a new world for a minister’s unreimbursed business expenses. The employer-related business expenses that are not reimbursed are simply not deductible at all for income tax purposes. This is because the section of Schedule A has been totally eliminated—the Miscellaneous Deductions section.

So, the importance of a church’s reimbursement of a minister’s church-related business expenses is vital. Without a tax-free reimbursement under an accountable plan, the minister does not recoup any of these expenses.

What to do:

  1. Be sure the church has a sound accountable expense reimbursement plan.  There is a sample document in the ECFA Knowledge Center on our website.
  2. Follow the provisions in the accountable expense reimbursement plan, including being sure that (a) there is a business purpose for the expenses, (b) the expenses are substantiated in a timely manner, and (c) there has been a proper return of excess reimbursements. 

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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