Key takeaway:
- Club dues for recreation or fitness are not deductible as business expenses under current IRS regulations.
- Churches must report these dues as taxable income if paid on behalf of ministers.
- Dues to professional or civic organizations may still qualify as business expenses.
Under the current tax laws, many clergy members face specific rules about how certain expenses, such as club dues, are handled. Can clergy deduct or have churches reimburse dues for local clubs like fitness centers or golf courses? Here’s the answer:
Dues paid to clubs organized for recreation, pleasure, or other social purposes are not deductible as business expenses under IRS regulations. However, dues paid to professional or civic organizations may qualify as business expenses.
What the IRS Says About Club Dues
The IRS regulations, updated after the most recent tax reform, clarify the treatment of club dues:
- Dues for fitness clubs, golf clubs, airline lounges, or social clubs are not deductible as business expenses.
- Dues to professional organizations (e.g., bar or medical associations) or civic organizations (e.g., Rotary, Lions) may qualify as business expenses.
The IRS makes no exceptions for club memberships that enhance health or provide community exposure for clergy or churches.
Key Points for Churches and Clergy
IRS rules mandate that church-paid club dues for recreation must be reported as taxable income. Learn more about clergy tax compliance on the IRS website.
Here’s how the rules apply in practice:
Reimbursements
- Churches cannot reimburse club dues under an accountable expense arrangement.
- Such reimbursements must be reported as additional taxable income on the minister’s W-2 or 1099 form.
Deductions
- Clergy cannot deduct unreimbursed club dues for recreation or social purposes.
Implications for Church Treasurers
Church treasurers need to adjust their practices to comply with the IRS regulations. Here are the key steps to take:
Re-Evaluate Practices
- If your church pays club dues for clergy, reassess this policy in light of IRS guidelines.
Accountable Reimbursement Arrangements
- Do not include recreational club dues in an accountable expense arrangement.
- Report any paid dues as taxable income on W-2s or 1099s.
Allowable Business Expenses
- Dues for professional or civic organizations, such as Rotary or Kiwanis, can still qualify as business expenses if they meet IRS requirements.
Examples to Clarify the Rules
Example 1: A church pays $1,500 annually for a minister’s fitness club membership. These dues cannot be reimbursed as a business expense. Instead, the full amount must be reported as taxable income on the minister’s W-2, and the minister must report it as additional income on Form 1040.
Example 2: A minister personally pays for a golf club membership. Since the dues are for recreational purposes, they are nondeductible personal expenses.
Final Considerations for Churches
While churches may continue paying such dues, it’s essential to report them accurately as taxable fringe benefits. Failing to do so could lead to compliance issues.
The following has been added to the original content to maintain accuracy and relevancy:
FAQ on Clergy Taxes
- Can clergy deduct club dues?
No, club dues for recreational or social purposes are not deductible under IRS rules. - Can a church pay for a minister’s club dues?
Yes, but the amount must be reported as taxable income on the minister’s W-2 or 1099. - What types of dues qualify as business expenses?
Dues for professional or civic organizations may qualify if they meet IRS requirements. - How should churches report paid dues?
Churches must include paid dues for recreation in the minister’s taxable income.