Reimbursing Expenses (part 2):
Churches are required to follow the IRS “accountable reimbursement plan” rules when reimbursing business expenses. Proper documentation is a key requirement: the employee must document the business purpose of the expense.
One area where we find that many churches don’t comply is in reimbursing automobile expenses. Some churches pay for fuel for the employee’s personal vehicle. Since it cannot be determined how much of each tank of gas is used for church business versus personal, this arrangement does not comply with the IRS rules.
For this reason, the IRS annually issues the allowable reimbursement rate for business travel. For 2014, the rate is $0.56 per mile. This requires the employee to keep track of all business miles. The rate is set to cover fuel, wear and tear, depreciation and maintenance expenses. The church can reimburse at a lower rate if they choose.
It is also important to note that driving from home to the office and back is considered “personal commuting” and should not be reimbursed. Mileage reimbursement is not taxable to the employee.
These rules apply when the employee owns his own vehicle. If the employer/church owns the vehicle, then all expenses related to the vehicle, including fuel, should be paid by the church. However, a mileage log is still required to determine the taxable value of any personal use of the vehicle.