Question: More churches have allowed pastors and employees to work from home one or more days a week. For income tax purposes, can those individuals deduct the business expenses they incur while working from home?
Are Remote Work Expenses Deductible?
In general, employees can no longer deduct unreimbursed business expenses from their personal income tax returns. This change stems from the Tax Cuts and Jobs Act of 2017, which eliminated miscellaneous itemized deductions, including unreimbursed employee expenses.
However, this does not mean that churches cannot assist pastors and staff with their home office expenses. Here are two key considerations:
Ministers and Dual Tax Status
Ministers are uniquely treated under the tax code due to their dual tax status. They are considered employees for income tax purposes but are treated as self-employed for Social Security and Medicare purposes under the Self-Employed Contributions Act (SECA). Because of this distinction, ministers may still be able to deduct unreimbursed business expenses when calculating net income subject to self-employment tax. Consulting with qualified tax counsel is essential to explore this possibility further.
Reimbursement for Work-from-Home Expenses
Churches can reimburse pastors and staff for valid business expenses incurred while working from home under an accountable reimbursement arrangement. Eligible expenses include costs for equipment and supplies used exclusively for employment purposes. Examples of reimbursable expenses include:
- Computers or laptops (especially for cybersecurity and productivity needs)
- Monthly internet service (to ensure adequate speeds for video calls and other activities)
- Office supplies, such as paper, pens, or folders
- Printers, scanners, or other office equipment
- Office furniture, if necessary and approved by the employer
Advantages of Reimbursements
There are distinct advantages for churches to reimburse work-from-home expenses:
- Tax-Free Reimbursements: Expenses reimbursed under an accountable reimbursement arrangement are not taxable income to the employee.
- Improved Productivity and Security: Providing specific equipment or internet services ensures employees have the tools needed to perform their roles effectively and securely.
For a detailed look at accountable reimbursement arrangements, including key points and examples, see Chapter 7 of Richard Hammar’s “Church & Clergy Tax Guide”.
Important Considerations
For Pastors and Employees
If an employer pays for furniture or equipment, the employer retains ownership of these items. Employees are responsible for maintaining these items and returning them if their employment ends.
For Churches
Reimbursements can impact budgets, but they provide significant financial relief to employees and are generally not taxable. Churches should balance the financial benefit to staff with their overall budgetary constraints.
FAQs About Remote Work Expense Deductions
Can pastors deduct home office expenses on their taxes? Pastors may deduct unreimbursed business expenses for self-employment tax purposes but should consult with a tax professional for guidance. What is an accountable reimbursement arrangement? It is a plan that allows employers to reimburse employees for valid business expenses tax-free, provided detailed documentation is maintained. Which expenses qualify for reimbursement? Qualifying expenses include computers, internet service, office supplies, and other items used exclusively for work purposes. Do employees own reimbursed equipment? No, items purchased or reimbursed by the employer typically remain the property of the employer.
Conclusion
While pastors and church staff may not be able to deduct unreimbursed business expenses directly, churches can help by reimbursing valid work-from-home costs. This not only supports staff productivity but also provides financial relief through tax-free reimbursements. Churches should establish clear accountable reimbursement arrangements to ensure compliance and maximize the benefits for their teams.