Skip to main content

Church Car Purchase for Pastor

Question:

A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement?

Answer:

The church has two main alternatives for this purchase: 
  • Title the car in the pastor's name and reimburse him for business expenses
  • Title it in the church's name and treat personal use as taxable compensation
There are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post.

If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The church can reimburse him at the standard mileage rate for any business use of the car. Under this arrangement, he should keep a current, detailed log of business use in order to facilitate reimbursement of business expenses. If the church chooses to give him the car outright, he will also be personally responsible for repair, upkeep, and insurance expenses. To the extent that those expenses are paid by the church, they will be treated as taxable compensation.

If the church chooses to purchase the car in its name, the immediate tax consequences are more advantageous to the pastor. The church can, and should, pay all expenses, including insurance, repairs, upkeep, and fuel. To the extent that he uses the car for business use, he should keep a log, but the church will not be required to report taxable income to its pastor. Any personal use will be taxed as compensation at the standard mileage rate, unless the pastor chooses to reimburse the church at that rate for any personal use. The standard mileage rate for 2013 is $.565 per mile. The key difference is that all expenses can be paid by the church, with only personal use taxed. However, if the car is given outright to the pastor, the value of the car itself is taxed, and only expenses directly related to business use can be reimbursed with no tax consequences.

This blog response has been prepared assuming that the church will be purchasing a car, rather than simply reimbursing the pastor for business use of his personal car. While each treatment has its advantages, registering the car in the church's name is especially recommended if the car will be used largely for business purposes. Any church considering a purchase of this size should consider the benefits and tax consequences of each treatment in order to make the best decision.

Comments

  1. If purchasing a car and gifting to the minister, how should the church report this taxable income - on the minister's W2?

    ReplyDelete

Post a Comment

Popular posts from this blog

Qualified Small Employer HRAs

On December 13, 2016, President Obama signed the 21st Century Cures Act, allowing qualified small employers to offer Health Reimbursement Arrangements (HRA) that follow certain terms.

After the Affordable Care Act was passed, the IRS originally determined that an HRA was not a qualified group health plan. The Cures Act overrules this decision. HRAs are again an option for qualifying small employers.

To be eligible, the small employer must have fewer than 50 employees and must not offer a group health plan to any of its employees.

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must be subject to the following terms.
No salary reduction contributions may be made (i.e., 100% employer-funded).Employer must receive proof of employee’s minimum essential coverage.Reimbursements must be for qualifying medical expenses.Reimbursements for any year cannot exceed $4,950 (or $10,000 for family coverage), which will be adjusted annually for inflation.Employer must offer the …

Gifts Paid Out of Church Funds: Form 1099-MISC Requirements

Question:
 A church gave a wedding gift of $1000 to a couple who are church members. No goods or services were provided by the couple in exchange for the gift.  Is a Form 1099-MISC required? 
Answer: In the following answer, we assume that the couple are not employees of the church from whom the gift could not be viewed as compensation for their services. Also, the amount seems to be small enough to avoid any concerns of "private inurement."

Accordingly, no Form 1099-MISC is required. According to the 2017 IRS Instructions for Form 1099-MISC a Form 1099-MISC is only required for payment of goods or services. The requirements are as follows:
"File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year:  At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8);  At least $600 in:  1. Rents (box 1);  2. Services performed by someone who is not your …

Revised Form I-9 Released

The U.S. Citizenship and Immigration Services released a revised Form I-9. All new hires after January 21, 2017, must complete the revised Form I-9. All prior released versions of Form I-9 will be invalid for new hires.

Employers are required to have a completed hard copy of Form I-9 on file for each employee. Current employees do not need to re-complete the revised form.

More information on Form I-9 can be found on the USCIS website.