Wednesday, March 27, 2019
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—In December 2018, the IRS mileage posted the rate for 2019 at 58 cents per mile for business purposes. This is the maximum amount that can be reimbursed tax-free. See this IRS page for their info. 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 58 cents per mile 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.