What Costs Can a Pastor Legally Pay?

The main goal of every church is to have good pastoral leadership. Paying pastors fairly and covering their expenses is important not only to respect their service but also to follow IRS rules and church governance requirements. Knowing exactly what churches can legally pay or repay pastors helps them avoid expensive tax problems, ensures everyone is treated fairly, and makes the church more accountable.

The Basics of Paying Pastors' Legal Fees

Churches can pay or compensate pastors for costs linked to their work through accountable plans, which let them get tax-free reimbursements as long as they keep good records. Otherwise, reimbursements could be considered taxable income.

What the IRS Says About Paying Pastors' Expenses

Accountable plans need a commercial relationship, timely accounting, and the return of extra money. Taxable income includes non-accountable reimbursements.

Typical Costs for Legal Pastors

• Housing and housing allowances (with proof)
• Travel and mileage for ministry work
• Costs for conferences and continued education
• Professional fees and subscriptions
• Ministry tools and supplies
• Health insurance premiums and benefits

The Risks of Making Wrong Payments for Expenses

• Personal costs that are taxed as income
• Reimbursements that aren't documented that lead to audits
• Not making explicit policies and decisions

Best Ways to Follow the Rules

• Make policies that hold people accountable
• Keep track of everything and save the receipts
• Teach pastors and finance teams
• Every year, write down housing allowances
• Check your pay regularly

How Tier 3: The Pastor Support Plan Can Help

• Audits of pay every three months
• Expert help with priority
• Planning for taxes and riches in the pastoral world
• Help with governance

Examples in Real Life

• Reimbursement for ministry conference travel under an accountable plan
• Properly specified housing allowance lowers taxable income
• IRS audit because of illegal expenditure reimbursements

Frequently Asked Questions

You can't get tax-free refunds for personal costs. To avoid being taxed on income, you need receipts. Not all perks are free from taxes. Every year, you should look over your expense policies.

Disclaimer of Liability

This blog article is simply meant to give you information and is not legal advice. Get precise advice from a certified lawyer.

Links Inside

• Rules for IRS Accountable Plans
• ECFA Compensation and Benefits Guide
• Overview of ministry tax exemptions

Links Outside

• IRS Accountable Plan Rules: https://www.irs.gov/publications/p463
• ECFA Compensation and Benefits Guide: https://www.ecfa.org/Content/Compensation
• Ministry Tax Exemptions Overview: https://www.churchlawandtax.com