All meal expenses for church pastors and staff should not automatically be reimbursed. The reimbursement of meal expenses must comply with specific IRS guidelines to ensure they are deductible and not considered taxable income. Here are the key considerations:
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Business Connection: The meal expenses must have a direct business connection. This means the expenses must be incurred while performing services as an employee of the church. For example, meals consumed during a business meeting or while traveling for church-related activities may qualify.
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Substantiation Requirements: The expenses must be substantiated. This involves providing adequate records that detail the amount, time, place, and business purpose of the meal. Receipts and a clear explanation of the business nature of the meal are necessary.
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Accountable Plan: The church should have an accountable plan in place. Under an accountable plan, the employee must substantiate the expenses and return any excess reimbursement within a reasonable period. If the plan is non-accountable, the reimbursements are treated as taxable income to the employee and are subject to withholding taxes.
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50% Limitation: Generally, only 50% of the meal expenses are deductible. This limitation applies to both reimbursed and unreimbursed meal expenses. However, there are exceptions, such as meals provided for the convenience of the employer or meals provided during business travel, which may be fully deductible under certain conditions.
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Non-Entertainment Meals: The meal expenses must not be lavish or extravagant under the circumstances. Meals provided during entertainment events are generally not deductible unless the cost of the meals is separately stated from the entertainment costs.
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Temporary 100% Deduction: Note that the temporary 100% deduction for business meals paid or incurred after 2020 and before 2023 has expired. For 2023, the standard 50% limitation applies.
Example Scenarios:
- Business Meetings: If a pastor has a meal with a church member to discuss church business, the expense can be reimbursed under an accountable plan, and 50% of the cost is deductible.
- Travel: If a staff member travels for a church conference and incurs meal expenses, these can be reimbursed under an accountable plan, and 50% of the cost is deductible.
- Lavish Meals: If the meal is considered lavish or extravagant, it is not deductible, and reimbursement should be avoided or treated as taxable income.
Documentation:
- Receipts: Keep all receipts for meal expenses.
- Details: Record the date, location, attendees, and business purpose of the meal.
- Accountable Plan: Ensure the church has a written accountable plan that complies with IRS regulations.
Conclusion:
Reimbursement of meal expenses for church pastors and staff should be carefully managed to comply with IRS rules. Only those expenses that meet the business connection, substantiation, and accountable plan requirements should be reimbursed, and generally, only 50% of such expenses are deductible. Lavish or extravagant meals should not be reimbursed or should be treated as taxable income.
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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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