My church treasurer doesn’t like to do a lot of extra paperwork, so we have a simple system. I keep track of my expenses related to my work at the church and give her a total each month. She then writes me a check. Anything that isn’t expenses she totals and puts on a Form 1099 at the end of the year. Is this okay?
This question raises a number of issues. First, this approach does not comply with the accountable expense reimbursement plan rules in terms of timely reporting and substantiating expenses. Secondly, ministers should receive a Form W-2, not a Form 1099-MISC.
Let’s put some numbers with this fact pattern. If the minister’s total cash compensation for the year is $40,000 and the expenses are $10,000, using the method suggested in the question, the minister is receiving a Form 1099-MISC showing $30,000 of income. However, since the accountable expense reimbursement plan rules are not being followed, all of the expense reimbursements are taxable and the Form W-2 should show $40,000 of taxable compensation in Box 1.
Dan Busby is a certified public accountant, acting president of the Evangelical Council for Financial Accountability (ECFA), and the author of the Zondervan Clergy Tax & Financial Guide.