Q: We are having a problem with our associate pastors not turning in their church credit card receipts. Our senior pastor would like to deduct any undocumented church credit card charges from the offending employees' pay. I'm not sure this is legal. Of course, they know that they are never to use the card for personal expenses. We do not doubt some charges are legitimate church expenses, and we do trust our pastors, but we need to account for each transaction. Is it legal to deduct personal charges from their pay?
A: A church's payment of an employee's charges to a church credit card without adequate substantiation constitutes a nonaccountable reimbursement that must be reported by the church as taxable income on the employee's W-2. A church's payment of charges that are adequately accounted for by the employee represent an "accountable" reimbursement that is not taxable income. An accountable reimbursement, for most business expenses, is a reimbursement that meets the following four requirements: