Accountable Reimbursement Policy – How Should You it Up Set Up?

An accountable reimbursement policy is a method for claiming and reimbursing professional or business expenses.

For business and tax reasons, it is usually in the best interest of your Church to have such a policy in place.

However, you need to realize that the rules for employee expense reimbursements are the same for Churches as they are for all other businesses. There are not any special rules for Churches in relation to employees’ business expenses.

There are multiple ways to set up your reimbursement policy. However, there are some rules that every accountable reimbursement policy must follow in order to be accountable.

A policy must:

Be written (It can be as simple as a short paragraph in the form of a resolution or a detailed plan depending on your Church own needs and structure.)
Be adopted by an official action by the paying entity
Provide payment for only legitimate expenses with a business purpose, incurred solely for the benefit of the paying entity
Require proper substantiation of the expense, including a written record made at or near the time of the expenditure, plus documentary evidence, such as receipts
Require that the substantiation be submitted to a third party (usually the treasurer), within a “reasonable” period of time.

Some employee business expenses that can be included in your policy, but are not limited to:

Mileage (standard federal rate)
Tolls and parking
Travel Expenses
Postage
Office Supplies
Professional dues, subscriptions, and certain books

Some examples of improper items (items that should NOT be included in your policy):

Mileage to Church from home for daily work (considered personal commuting)
Vacations (including trips to the Holy Land)
A computer used primarily by family
Everyday clothing (including business suits)
Child care/dependent expenses
Housing related expenses (e.g. utilities, furniture, upkeep (theses are part of the housing allowance) except to the extent they relate to an office)

A Church can reimburse the staff person or pay for their business expenses directly.Either or both methods are acceptable. Your staff may submit a bill and ask the Church to pay it. Or…they can substantiate the expense and ask your organization to reimburse them.

The IRS requires the Church to maintain good records and have actual receipts for any expense over $ 75 (you may use this figure or set a lower limit such as $ 25) and proper documentation to back up expenses.

The documentation must include:

the purchase
amount
date
place
business nature of the expense.

The IRS also requires that all substantiation/receipts of expenses be provided within a “reasonable” time of the expense being paid or incurred.(This is set in the resolution and/or detailed policy plan…30 or 60 days is common)

The Church can make advance payments; however, it needs to be set up that way in the policy. This can be especially beneficial for staff travel.

If an advance is given and exceeds the amount of business expenses substantiated, the staff person must return the excess within a “reasonable” time (your organization sets time limits) of the date incurred or paid.

If your Church has paid for equipment and other items through the accountable reimbursement policy, the equipment or other property belongs to your organization.

This does not apply to travel, continuing education, professional dues, or entertainment expenses which are not “tangible” things.

It would also not pertain to small office supplies, postage, periodicals, or personal religious supplies, such as robes. These items are used up or are so personal that they have limited or no value to the Church.

This article is provided to give you suggestions for establishing an accountable reimbursement policy. It is imperative to examine your own situation in setting up your policy as each Church is different.

The important thing is to have a policy in place BEFORE you reimburse that employee or volunteer for their expenses. Because…if you reimburse them without requiring any substantiation of their actual expense or do not have a policy set up…it is considered a non-accountable reimbursement plan and it is harmful to both to your Church and the individual as it becomes taxable income to them and could get you in hot water with the IRS.

Vickey Boatright has worked as a fund accountant for a non-profit organization for over 10 years. She is the financial advisor for her church and author of the website: http://www.freechurchaccounting.com a resource for church accounting, free financial spreadsheets, examples of proper and improper reimbursement items, budgets, audits, fund accounting, basic accounting, etc.

Author: Travel Deals

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