Most ministers and lay church employees incur expenses when performing their duties. The tax treatment of these expenses depends on whether a person is an employee or self-employed, whether the expenses are reimbursed by the church, and whether any reimbursed expenses are paid under an accountable or a nonaccountable reimbursement plan.
Here are a few important details to understand about business expense reimbursements.
Unreimbursed business expenses
These expenses were no longer deductible by employees as itemized expenses on Schedule A (Form 1040) after 2017.
Employee business expenses reimbursed under a nonaccountable arrangement
These expenses were no longer deductible by employees as itemized expenses on Schedule A (Form 1040) after 2017.
Avoid limitations with an accountable arrangement
The limitations on the deductibility of employee business expenses (summarized above) can be avoided if the church adopts an accountable reimbursement plan. An accountable plan is one that meets all of the following requirements:
- Only business expenses are reimbursed.
- No reimbursement is allowed without an adequate accounting of expenses within a reasonable period of time—not more than 60 days after an expense is incurred.
- Any excess reimbursement must be returned to the employer within a reasonable period of time—not more than 120 days after an excess reimbursement is paid.
- An employer’s reimbursements must come out of the employer’s funds and not by reducing the employee’s salary.
Under an accountable plan, an employee reports to the church rather than to the IRS. The reimbursements are not reported as income to the employee, and the employee does not claim any deductions. This is the best way for churches to handle reimbursements of business expenses.
If the requirements of an accountable reimbursement arrangement are not met, then the church’s reimbursement of an employee’s business expenses must be reported by the church as taxable income to the recipient.
For more help, see Chapter 7 of Richard R. Hammar’s 2025 Church & Clergy Tax Guide. It provides detailed reimbursement guidance on business and professional expenses, including transportation, travel, entertainment, education, phones, and more.