MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question:

A minister receives a Form 1099-MISC from a church for which he provided no services during the year. His current church issues him a W-2. Is the Form 1099-MISC income taxable? If yes, how should he report this on his tax return?

Answer:

It is apparent that the church in the question above distributed money to someone, otherwise no Form 1099-MISC would have been issued! There are three likely explanations for a situation of this nature:

The first possibility is actually a fairly common situation. It could be that the church that issued the Form 1099-MISC has identified him as a "missionary" and has chosen to support him financially even though he provides no services directly to that congregation. In this situation, the Form 1099-MISC income is taxable as support.

Another alternative possibility is that he received Form 1099-MISC income that he was required by contractual arrangement to pass along to his employer who is already fully compensating him. In this case, he s…

Question:

A church has an accountable plan in place to reimburse its minister for business expenses. Unfortunately, the church often does not have the funds available to reimburse its minister at the end of the year. How can it address this issue?

Answer:

The easy answer for the church is to simply reimburse as much as possible; the minister could then deduct any unreimbursed expenses on Form 2106 for federal tax purposes. However, there are two difficulties for the minister in this scenario:
Unreimbursed business expenses for an employee can only be deducted on Form 2106, which flows through to Schedule A. Schedule A deductions only benefit a taxpayer who itemizes rather than taking advantage of the standard deduction. Also, unreimbursed business expenses are only deductible to the extent they exceed 2% of the taxpayer's adjusted gross income (AGI). For instance, a taxpayer with $50,000 of wages and no other deductions would have an AGI of $50,000, and could only deduct on Schedule A…