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Accountable Reimbursement Plans

Churches sometimes make the mistake of regarding “compensation” as a “package” of cash salary, expense reimbursement and benefits. MMBB believes strongly that it is particularly important to avoid combining compensation with benefits or ministry-related expenses. When these categories are kept separate from each other, the pay for the pastoral staff is better understood.

Churches should set up an “accountable plan” (also called an “accountable reimbursement plan”) for ministry-related expenses. “Ministry-related expenses” are, quite simply, expenses the pastor incurs while doing the church’s business. Common examples include:

  • Convention expenses, including the transportation, meals, housing and registration costs of attending area, regional and national meetings
  • Continuing education expenses
  • Reimbursement for miles driven by the pastor on church business
  • Books, periodicals and other resources used to improve the church’s ministry
  • Expenses for events extended to persons or groups in the church or community (e.g., if the pastor has the youth group over for pizza, this is the church’s cost—not the minister’s)
  • Miscellaneous other expenses, including reimbursement of Ministers Council dues or other unique requirements of the pastoral ministry in your church

Accountable reimbursement plans:

  • Should be constructed to eliminate any confusion around the taxability of any expense reimbursement
  • Must conform to IRS requirements
  • Cannot be funded through a salary reduction arrangement

If the church does not have an accountable reimbursement plan in place but instead reimburses staff for expenses paid, those reimbursements are considered wages (i.e., taxable income). For this reason, MMBB recommends that your church set up an accountable plan today.

To set up an accountable reimbursement plan, establish these guidelines:

  • The church board should pass an appropriate resolution containing criteria for ministry-related expenses.
  • The Accountable Reimbursement Plan should be in writing, clearly specifying which expenses the church will reimburse and the documentation required to file an expense.
  • Expenses must have been incurred while performing services as an employee of the church.
  • Adequate expense accounting must be made to the church with documentary evidence, such as an auto diary, account book, receipts to verify the amount, time, place and professional purpose of each expense, etc.
  • Expenses must be substantiated within 60 days after they are incurred and any excess reimbursement returned to the church within 120 days. If not, the amount in question becomes part of the minister’s income and is reported on his/her W-2.

For more information, see Federal Reporting Requirements for Churches by Richard. R. Hammar. As always, you can also contact a senior benefits specialist at 800.986.6222 or service@mmbb.org for additional assistance.