Employees and volunteers should be reimbursed for approved church related expenses upon submission of receipts and accurate expense reports that conform to the annual budget and IRS requirements. Such expenses may include:
Travel – transportation, lodging, meals, incidentals and other associated expenses
Computers and related equipment costs
U.S. tax law sets the rate for reimbursement of travel expenses for volunteers serving a charitable organization. Non-employees, while on church business (such as out of town meetings, trips for educational purposes to locations removed from the church, travel with a youth group or a church school class, etc.) will be reimbursed at a lower volunteer rate.
Tax law provides specific requirements that apply to employees. The church, as a tax-exempt organization, is required by law to document the exempt purpose of every expenditure. Any expenditure which is not appropriately documented is considered to be a nonexempt expenditure. If employees receive reimbursement without providing the required documentation, that reimbursement is considered by the IRS to be the equivalent of a payment made under a non-accountable expense reimbursement plan.
Payments made under non-accountable expense reimbursement plans are taxable according to IRS Section 62 and are required to be reported to the IRS as such. Expense moneys paid other than through an Accountable Reimbursement Policy will be reported to the IRS as "other income" on Form W2, and then may be claimed by the taxpayer as itemized deductions on Schedule A or Schedule C of the 1040 tax return. Refer to the IRS Tax Guide for Churches and Religious Organizations for more details on this process.
Read about professional expense allowances.
- Use the minimum “Date, Vendor, Item, Purpose,” as a prompt to record the details of the transaction.
- Appropriate detailed back-up documentation, including itemized invoices and receipts, is required.
- Appropriate receipts are those provided by the vendor showing an itemized list of the items purchased and their prices. A credit card statement, a canceled check, or a tear tab receipt that shows only the total amount of the transaction is not sufficient documentation.
- Signatures are required according to the voucher form instructions to ensure that the expense has been properly approved. It is to the benefit of the church to pay expenses in a timely manner.
- All requests for reimbursement should be submitted within 90 days of the transaction.
When a receipt is lost, the claimant must make a good faith effort to obtain a duplicate, which is typically possible when one pays with a credit card. If a duplicate receipt cannot be obtained, the claimant should provide a written explanation. The Finance Committee or other body should have authority to deny reimbursement if documentation does not meet expectations set forth in the policy.