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Q&A: Tax Issues for Accountable Reimbursement Plans

How should we set up an accountable reimbursement plan?

Our church has adopted a fully accountable reimbursement policy for business expenses, using advances rather than reimbursements. We advance each of our pastors a set amount of funds twice a month. Each pay period they receive salary, housing allowance, and the advance allowance. I am trying to clarify some accounting issues regarding our accountable plan. My first question is if there is a specified number of days during which the advances must be spent. Do the funds in fact have to be used within 60 days or can the church board set the number of days? Can it be 90 days or can it be on a calendar year basis? I do know that whatever funds they don't use must be returned or added to their W-2 as taxable income.

To be an accountable plan, your church's reimbursement or allowance arrangement must include all of the following requirements:

  1. Employees' expenses must have a business connection—that is, employees must have paid or incurred deductible expenses while performing services as an employee of your church.

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  • August 3, 2009

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2020 Church & Clergy Tax Guide
2020 Church & Clergy Tax Guide
Find comprehensive help understanding United States tax laws as they relate to pastors and churches.