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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 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 to this scenario. If the minister’s total cash compensation for the year is $40,000 and the expenses were $10,000, using the method suggested, the minister would receive a Form 1099-MISC showing $30,000 of income. However, since accountable expense reimbursement plan rules were not followed, all of the expense reimbursements would be taxable, thus Form W-2 should show $40,000 of taxable compensation in Box 1.

Learn more about properly designating minister's income to achieve tax savings with P&B Memo #5 - Minimizing Income Taxes for Church Employees.

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.