How can my ministry expenses be covered by the church?

How can my ministry expenses be covered?

Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are incurred can be provided by the employer but only under strict documentation rules. Non-accountable plans are very unfavorable since all cash advances received are simply counted as additional taxable income.

This excerpt is a portion of our top 10 list for new ministers. If you would like to see all of the frequently asked questions ministers have you can visit this link.

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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...

Can Form 4361 be filed after the deadline?

Question: Is it possible to opt out of Social Security after the 2-year deadline? Answer: Unlike other employees, a licensed or ordained minister has the option to opt out of Social Security and Medicare (FICA). If a minister wants to opt out they must file Form 4361 by the tax deadline including extension, in the second year in which they have received ministerial income of $400 or more. This election is final, and the minister cannot opt back into FICA taxes. At MinistryCPA, we have received questions from ministers who have exceeded the two year deadline and desire to opt-out. There have been several court cases which provide guidance in answering this question. Some have argued that the minister was unaware of the deadline, had mistakenly believed they had filed a timely election, were given incorrect advice by an IRS employee, or their opposition to participate in Social Security and Medicare did not arise until after the 2-year deadline had passed. In each of th...

Form 941 or 944 - Which Should a Church Use for Payroll Reporting?

Question: Are churches required to file a Form 944 annually to report their employees' earnings and tax-withholdings? A quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed? Answer: According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944. The IRS Ministers Audit Techniques Guide explains in further detail a minister's treatments for Social Security, Medicare tax, and income tax withholding. Form 941 or 944 must be filed when non-ministerial employees are compensated or when ministers request withholding. When can a church file the annual Form 944 rather than filing Form 941 each quarter? The IRS may permit the annual filing of Form 944 for employers wh...

MinistryCPA - Corey A. Pfaffe, CPA, LLC

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