As a church or any other non-profit operates, the staff and volunteers doing business and conducting activities on behalf of the church will incur expenses.  The frequency at which this occurs as well as the number of individuals involved will expand as ministries, volunteer and staff rosters expand.  Therefore it’s important to establish a reimbursement policy for both IRS compliance and maintain a willing pool of resources.

Unfortunately, it is very common for churches to reimburse employees whether they are ministers or not, and without requiring any substantiation of actual expenses. Similarly, making reimbursements in excess of substantiated expenses is also a common error.  This arrangement is called a non-accountable
reimbursement plan and it is harmful to both the Church and the individual.   The tax consequences of a non-accountable plan are that the employers are required to report the full amount of any reimbursement as income to the employee on their W-2.

An Accountable Reimbursement Plan

It is in the best interest of every church to
maintain an accountable reimbursement plan using the following four rules: 

1. All reimbursed expenses must have a business or ministry connection. 
2. The expenses must be accounted for in a timely manner (within 60 days after an expense was incurred). 
3. The plan must require all excess reimbursed amounts be returned to the employer within a reasonable period (not more than 120 days after the reimbursement was paid).
4. The reimbursement can not be a deduction of an employee’s salary.
5. An “Accountable Reimbursement Plan” must include clear guidelines and policies addressing:
   1. Travel Expenses
   2. Travel Advances
   3. Meals
   4. Entertainment
   5. Mileage
6. Personal expenses are not reimbursable regardless of any difference in costs while traveling or otherwise.

Out of Pocket Expenses

Establishing effective policies and clearly communicating them within the organization are steps that should be taken to ensure ongoing compliance.  These are a few suggestions to include in your reimbursement guidelines:

• Employees who have been authorized by the CEO to use their own funds for purchasing items or
  services for the organization will be reimbursed promptly.
• A CHECK REQUISITION Form is to be completed and submitted to a supervisor, who will then justify the expense to the Finance Officer, before (s)he authorizes same.  If approved the purchase then can be made by the employee.
• All receipts must be retained, for attachment to the approved authorization, when this is being
  submitted to the Finance Officer for reimbursement.
• These out-of pocket expenses paid for by employee must not exceed $________.

A sample check requisition form, complete reimbursement policy, etc. is available in my free Ministry Compliance Kit.  The free kit includes over a dozen tools – complete policies, letters and forms you can customize and implement for your ministry.

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