IRS Changes Mileage Reimbursement

By Raul Rivera

Every week we receive thousands of emails from pastors and church leaders across the country. Many of the emails we receive are from current customers inquiring about the service(s) that we are providing for them. However, we also receive copious amounts of emails from pastors and church leaders, both customers and non-customers alike, with questions about church compliance.

These questions range from anything having to do with pastoral compensation and housing allowance, to what kind of strategies to implement in order to strengthen their church’s bylaws. One question that I want to spend some time answering today is the following:

“How can churches properly reimburse their staff and volunteers for the miles those individuals drive for church purposes?”

A common question and misunderstanding

While a question regarding mileage reimbursement may not seem like a pressing matter for the church, it is a legitimate matter that is necessary for all churches and ministries to fully understand. Many of the pastors and church leaders we speak with daily assume that when it comes to mileage reimbursement the church can simply fill up the gas tank for the individual in need of reimbursement. However, mileage reimbursement does not quite work that way.

In the instance that a church simply fills up the gas tank of an employee or volunteer, then the amount paid to fill up his or her gas tank technically becomes taxable income.

I realize that this may seem absurd, but it is true. The instance of filling up an employee’s or volunteer’s gas tank becomes taxable income to that person because the act of filling up his gas tank is technically being done in consideration for a service he provided (i.e. driving somewhere for the church).

Since there is a common misunderstanding regarding mileage reimbursement, let us take a look at how to properly handle mileage reimbursement for both employees and volunteers.

Mileage reimbursement: 2 methods

There are two general methods that can be used in order to reimburse an employee and/or volunteer for the mileage he drives for church purposes: the actual expense method and the standard mileage rate method. Below we will take a look at both of those methods.

Actual expense method

Of the two methods that can be used for mileage reimbursement, the actual expense method is the most burdensome of the two for the individual seeking reimbursement. As is stated in the name of this method, an individual can deduct the actual cost of using their vehicle for business or charitable purposes, plus depreciation.

As you can guess, this method requires more record keeping than the standard mileage rate method, however, it can result in a large deduction for the driver. If you choose to reimburse your church employees or volunteers via the actual expense method, then they must keep track of all costs incurred for their vehicle each time they used their vehicle for church purposes.

Some items that the employee or volunteer must keep track of includes, but is not limited to, the following:

• gas and oil
• repairs and maintenance
• car repair tools
• tires
• registration fees
• depreciation of the vehicle and improvements
• insurance
• towing charges
• car washes
• and more

Standard mileage rate method

Many churches that have gone through our StartRIGHT™Program have found that the standard mileage rate method is an easier process to handle for both the church and the individual needing reimbursement. This is for several reasons, but the most common reason is due to the fact that the substantiation requirements are not as burdensome on the employee or volunteer.

The standard mileage rate method requires that the driver keep track of how many miles he drives for church purposes, not the actual expenses of the vehicle as noted above. In addition to keeping track of the mileage, the individual should also keep track of the following:

• the date that the miles were driven,
• the destination he to which he drove,
• and the purpose for which the miles were driven.

Now, although the substantiation requirements are the same for both a church employee and a volunteer, the rate at which they are reimbursed differs from each other. Next, we will take a look at the standard mileage rates.

Standard mileage rates

The IRS permits employers to reimburse employees and volunteers for miles driven when using their personal vehicles on behalf of the corporation. The current mileage reimbursement rates are 57.5 cents per mile for business miles driven (for employees), and 14 cents per mile driven in service of charitable organizations (for volunteers).

The IRS does, however, update or change the mileage reimbursement rates at the beginning of each year. Just last week the IRS released the standard mileage reimbursement rates for 2016. (Click here for more information.)

The following rates will go into effect beginning January 1st, 2016:

• 54 cents per mile for business miles driven (for employees)
• 14 cents per mile driven in service of charitable organizations (for volunteers)

Take note that the standard mileage reimbursement rate for volunteers will remain the same in 2016, however, the standard mileage reimbursement rate for employees will decrease by 3.5 cents for employees in 2016. Much of this drop in the standard mileage reimbursement rate for employees is attributed to the lower gas prices that much of the country has experienced lately. 

Conclusion

Part of our vision and mission here at StartCHURCH is to supply church planters, pastors, and ministry leaders with up-to-date information that will help them to better protect what God has given them to lead. You no longer have to wonder if what you are doing is being done the right way. We would love to partner with you to give you the confidence you need to move forward in a strong, compliant manner.

If you have any further questions concerning mileage reimbursement, or if we can be of service to you and your church in any way, please feel free to call us, toll free, at 877-494-4655. We would be honored to serve you!

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