[ORGANIZATION NAME] [Street Address] · [City, State ZIP] [EIN: XX-XXXXXXX] ACCOUNTABLE REIMBURSEMENT PLAN Adopted by the [board of directors / vestry / session / board of trustees] of [Organization Name] on [Date], effective [Effective Date]. =============================================================================== 1. PURPOSE =============================================================================== [Organization Name] ("the Organization") establishes this Accountable Reimbursement Plan to reimburse employees and ministers for ordinary and necessary business and ministry expenses they incur on behalf of the Organization. This Plan is intended to meet the requirements of an "accountable plan" under the Internal Revenue Code and the related IRS regulations, so that reimbursements paid under it are NOT treated as taxable income to the recipient and are NOT reported as wages on the recipient's Form W-2. This Plan reimburses expenses IN ADDITION TO salary. Reimbursements are NOT made by reducing any employee's or minister's salary or other compensation (a salary-reduction arrangement does not qualify as an accountable plan). =============================================================================== 2. THE THREE REQUIREMENTS (all three must be met) =============================================================================== A reimbursement qualifies as tax-free under this Plan only if it satisfies all three of the following: (1) BUSINESS CONNECTION. The expense must be an ordinary and necessary business or ministry expense, paid or incurred by the employee or minister while performing services for the Organization. Personal expenses are not reimbursable. (2) SUBSTANTIATION (adequate accounting) WITHIN A REASONABLE TIME. The employee or minister must account to the Organization for each expense by submitting documentation showing the AMOUNT, DATE, PLACE, and BUSINESS PURPOSE of the expense, with receipts or other supporting records (e.g., a mileage log for vehicle use). Expense reports and documentation must be submitted within [60] days after the expense is paid or incurred. (3) RETURN OF EXCESS WITHIN A REASONABLE TIME. If the Organization advances funds, any amount the employee or minister receives that exceeds the substantiated business expenses must be returned to the Organization within [120] days after the expense is paid or incurred. Amounts not substantiated and not returned within these periods are treated as taxable wages. [OPTION: To avoid the return-of-excess issue, the Organization may choose to reimburse only actual, documented expenses AFTER they are incurred, rather than advancing funds. If so, state that here and delete the advance language.] =============================================================================== 3. ELIGIBLE EXPENSES =============================================================================== Subject to the budget and any limits the [board / treasurer] sets, the following business and ministry expenses are reimbursable when they meet the three requirements above: - Mileage / local transportation for Organization business, reimbursed at the current IRS standard mileage rate, supported by a mileage log (date, destination, business purpose, miles). [Set rate by reference to the current published IRS standard mileage rate — do not hard-code a figure that will go stale.] - Travel: airfare, lodging, ground transportation, and meals for conferences, mission trips, and other Organization business. - Supplies and materials used for the Organization's work. - Continuing education: conferences, seminars, courses, and related registration fees that relate to the person's role. - Professional dues, memberships, and work-related subscriptions. - Books and resources used in ministry or the person's job. - [Add or remove categories specific to your Organization.] NON-reimbursable (examples): personal, family, or living expenses; expenses without a business connection; anything lacking required documentation. =============================================================================== 4. SUBSTANTIATION AND TIMING RULES =============================================================================== - Submit an expense report (with receipts and the amount, date, place, and business purpose of each item) within [60] days of the expense. - Return any unspent advance within [120] days of the expense. - The [treasurer / business administrator] reviews each report for a valid business purpose and adequate documentation before reimbursing. - Reimbursements are posted to expense accounts, NOT to wages/payroll. - Keep all reports and receipts with the Organization's financial records. =============================================================================== 5. NO SALARY REDUCTION =============================================================================== Reimbursements under this Plan are paid in addition to, and not as a substitute for or reduction of, salary or other compensation. The Organization will not retroactively designate salary already paid as expense reimbursement. =============================================================================== 6. ADOPTION / BOARD RESOLUTION =============================================================================== RESOLVED, that [Organization Name] hereby adopts this Accountable Reimbursement Plan, effective [Effective Date], to reimburse employees and ministers for documented business and ministry expenses that meet the three requirements of an accountable plan under IRS rules; and RESOLVED FURTHER, that such reimbursements are made in addition to (and not in reduction of) compensation, are not reported as taxable wages, and that the [treasurer / business administrator] is authorized to administer this Plan in accordance with its terms. Adopted on [Date]. ____________________________________ ____________________________________ [Name], [Title] [Name], [Title] (e.g., Board Chair / Moderator) (e.g., Secretary / Clerk) =============================================================================== NOTES FOR CHURCHES (delete before adopting) =============================================================================== - WHY THIS MATTERS FOR CLERGY: A pastor generally CANNOT deduct unreimbursed business expenses against income tax (the miscellaneous itemized deduction for employee expenses is suspended through 2025), and those expenses don't reduce the self-employment (SECA) base the way many assume. A flat, undocumented "expense allowance" is TAXABLE wages. Running the same expenses through this accountable plan keeps the money tax-free in and tax-free out. - ADOPT IT IN ADVANCE: Pass the resolution BEFORE the expenses are incurred, the same way a church designates the housing allowance in advance. - REIMBURSE ACTUALS, NOT ALLOWANCES: Whenever possible, pay back documented expenses after the fact rather than advancing a lump sum — there's no excess to return and nothing to recharacterize as wages. - WHO ADOPTS IT: The vestry, session, elders, or board of trustees plays the role the law calls the board of directors; that body adopts this Plan. - IRS REFERENCES: IRS Publication 463 (Travel, Gift, and Car Expenses), https://www.irs.gov/pub/irs-pdf/p463.pdf ; and IRS Publication 1828 (Tax Guide for Churches and Religious Organizations), https://www.irs.gov/pub/irs-pdf/p1828.pdf . ------------------------------------------------------------------------------- This is a general template, not tax or legal advice. Bracketed items must be adapted to your organization. Adopt your plan with your board and review it with a qualified tax advisor or CPA before relying on it.