Wednesday, September 12, 2018
Hey Fletch … I believe I’m clear on the minister’s housing allowance designation. What about a car allowance? We have a new employee who says ministers can claim a car allowance that’s much like a housing allowance. I’ve not heard of that. Is it something we can leverage for our ministerial employees? Thanks!
DRF—A car allowance is essentially a taxable bonus. No documentation is needed because it is a bonus. There is nothing in a car allowance that is comparable with the housing allowance … it doesn’t reduce taxes but increases them.
There is a way for auto use to be tax-free. The IRS each year publishes standard mileage rates for “costs of operating an automobile for business.” If you want tax-free reimbursement for auto uses, each trip has to be documented for the purpose, miles, date, etc. This is called an “accountable plan” and the individual must record a log of every trip. The rate for business mileage for 2018 is 54.5 cents per mile. IRS Publication 463 outlines the policy and what is required in a log.
For example, with a log, a pastor can drive 51 miles round trip to visit someone in the hospital. The church can reimburse the pastor $27.79 for the trip. Generally logs are kept for an entire month and a reimbursement check is then drafted for all logged miles. Some churches do not allow staff members to drive their own vehicles on long trips, say 1,500 miles round trip, which would an $817.50 reimbursement! For long trips, the church can have a policy in place that requires rental cars to be used.
Making a log of each trip can be a pain. Often pastors forget to log their miles. At a recent workshop, a pastor mentioned that he used a smart phone app for the purpose. Without a log, you can’t reimburse tax-free.
If you give an automobile allowance, it is taxable.