Hey Fletch … Some of my fellow XPs have a variety of polices regarding mileage reimbursement for staff. I am wondering about best practices regarding this issue. Any help?

DRF—Check the current IRS mileage reimbursement rate for business purposes. This is the maximum amount that can be reimbursed tax-free. There needs to be a log for the IRS accountable plan—each trip needs the date, mileage and purpose. As a rule, pastors hate keeping these logs!

If a church pays more than the IRS amount, then anything above that is taxable income. Few churches pay more than the IRS maximum. Let’s say that a church did $1.08 per mile and the employee drove 1,000 miles. The business office would note that $580 is non-taxable income and $500 is taxable.

If a church pays less than the IRS maximum, that is legal too. A church could give 25 cents per mile and that would be non-taxable to the employee. Again, this is for business miles only. Some churches pay the IRS rate for in-town travel and a lower rate for long trips.

A church can give an auto allowance to an employee. This is considered taxable income and the pastor does not need to keep a log. Let’s say a church gives the pastor $200 a month as an auto allowance. Since this is taxable income, it can be given to some employees and not all. At the end of the year, the pastor will have $2,400 of “auto allowance” added to their W-2 statement from the church.

A couple of caveats:

  • I recommend for a long trip that the church rent a vehicle. If the trip is 1,000 miles, and at the IRS reimbursement level, that would cost the church $580. For that same amount, the church could rent a vehicle at weekly rates.
  • Have an accountable plan—with a log. It’s the law. Otherwise, the IRS will view all mileage payments as taxable income.
  • Do not “just buy the pastor a tank of gas when needed.” This does not qualify as an accountable plan, as there is no log. If a church does this, the best practice would then be to consider such payments as taxable income. Generally, a church pays for a tank of gas as a dodge to evade the IRS rules and regulations … not a good practice for those who are Christ followers.