Friday, November 2, 2018

Hey Fletch … I read the question about receipts being turned in to the church within sixty days of the expense. We also have a staff member who is turning in late receipts. Our Jr. High Pastor turned in receipts that are nine months old, just in time for the fiscal year to end. Should I really add $5,500 of youth ministry trip expenses to his income?

DRF—There are many problems with receipts that are nine months old. If you see an error in the charge, few businesses will want to correct a charge that is so old. Your church reporting will be incorrect for nine months. You may have thought that the person’s budget was on track for those nine months, only to discover that they overspent. The clock of the fiscal year-end was ticking, so your Jr. High Pastor finally turned in those receipts. 

The IRS in Publication 463 says, “You must adequately account to your employer for these expenses within a reasonable period of time.” Sixty days is generally considered a reasonable period of time. Nine months is way out of line.

I suggest that you talk to your church’s CPA. See if you can give a one-time reprieve from the normal reimbursement rules for the Jr. High Pastor. You may have leeway or you may not. If not, then you will be required to post the $5,500 of expenses as taxable income to the pastor.

Along the way, see if your church has some fault in the issue. Have you adequately communicated your reimbursement plan? In reviewing the monthly reports, have you talked to the pastor about the lack of any expenses in their area? If you are at fault, and the expenses need to be considered as income, you can give funds to help pay for the added income tax. Of course, these funds are further taxable income to the pastor.