Setting Up a Reimbursement Policy

Like all businesses, churches need a written reimbursement policy. It needs to meet the IRS’ criteria as an ‘accountable plan’ if your employee is to exclude the reimbursement from taxable income. A written policy sets standards for business expenses and minimizes the gray areas for what is and what is not a qualified business expense. Examples of expenses to make decisions on and document are:

–         Mileage reimbursement (We recommend you reimburse at the standard amount approved by the IRS.)

–         Parking and tolls

–         Travel expenses (including transportation, lodging, and meals)

–         Per diem amount for meals while traveling (if applicable)

–         Cell phones

–         Professional membership dues and periodical subscriptions

Additional decisions are required for the process of reimbursement:

–         Which expenses are reimbursable vs. expenses that should be paid directly

–         Acceptable time frame for submitting expenses (60 days per IRS rules)

–         Amount that needs a hard copy receipt (IRS standard is $75; your amount may be lower)

–         Whether or not cash advances are available, and the time frame for returning excess advance payment

–         Whether pre-authorization is required to qualify for reimbursement

Include in your policy the required documentation to meet IRS standards:

–         Type of purchase

–         Date, place, amount of purchase

–         Business nature of the expense

For nonprofit organizations, including churches with a 501(c)(3) designation, provide employees with a form or certificate that shows your tax exemption. If someone makes a purchase for your church that is reimbursable, then they do not need to pay sales tax. (Check your specific state for its rules.) But the place of purchase will need to see proof of tax exempt status.

One more thing – determine who approves expenses for each department or program area. Without proper approval, the reimbursement should not be made.