The information in this article for church credit cards also applies to church debit cards.
With new technology becoming available to churches and ministries everywhere, the question arises if credit cards are useful to the administration of an organization. Many pastors and ministry leaders wonder, “Will credit cards really help my church or ministry on a daily basis?”
The answer is, yes! Pastors and ministry leaders everywhere are discovering how convenient it is to have a church credit card for business-related purchases. And, they’re also finding how having a credit card takes the burden of reimbursements off of their shoulders and out of their wallets.
However, one concern that arises from the use of credit cards is whether or not they are being used correctly? What are best practices regarding these areas of concern, how they are used, and how does this impact your organization?
Common Areas of Trouble
Some pastors believe credit cards are more hassle than they are worth, while others love the convenience they provide. Credit cards can work well especially for organizations with many departments, but there are certain rules and procedures that should be followed by anyone who has access to them. So what are the pitfalls that need to be avoided? Here are a few of the most common trouble areas:
• Making personal purchases, such as meals and clothes
• Filling up the gas tank in a personal vehicle
• Using airline miles for personal trips
You can manage the proper use of credit cards with procedures and policies and by using the proper forms to ensure accountable reimbursement. Income Tax Regulation 1.501 states that a church has to be managed in a way that does not allow individuals associated with the church any private inurement. This is a serious offense that can incur hefty fines and cause your ministry to have its tax-exempt status revoked in the event of an audit.
But how do you tell what expenses are covered and what should be reimbursed? Let’s consider filling up the gas tank as an example.
Mileage Reimbursements
A pastor visits the local prison every weekend and stops at a gas station to fill up his car. He pays for his gas with the church credit card, and within minutes, he is on his way to continue the journey that is his calling. He may be shocked to hear that using the church’s credit card to pay for gas in his car is considered taxable income to him by IRS standards.
Gas pumped into your personal vehicle is taxable income because there is no way to differentiate what was used for ministry purposes and what may have been used for personal use.
The IRS permits the church to cover the cost of its mission by way of using a mileage reimbursement system. By doing so, you pay for the gas that goes into your vehicle and then submit a log of the miles used for that purpose to the church. The church can then reimburse you for the miles driven based on the IRS-approved reimbursement rate, not the actual cost on the receipt. This reimbursement rate is based not only on gas expense but also on the wear and tear on the vehicle. The 2019 IRS mileage reimbursement rate for employees is 58 cents per mile, which up form 2018’s 54.5 cents per mile. (Rates differ for volunteers).
Each year, the IRS takes the time to assess deductible costs for anyone that uses their personal vehicle for business, charitable, medical, or moving purposes. The church can reimburse the cost to them and have a record of the information if needed in the future. To do this, it must be determined which purchases were personal and which were for the ministry.
Business or Pleasure?
As a bookkeeper at StartCHURCH, I record transactions and compile financial reports. Too often, I see purchases made by a cardholder who pays for personal items. This can look like buying medicine from a pharmacy after they visit their doctor, purchasing clothes from the local department store for a conference that they are attending next month, or paying for hair-styling and makeup before they appear on a television ministry.
These are all considered personal purchases by the IRS and will be taxable income at the end of the year. The reason these expenses are taxable is because federal income tax liability is not covered while the individual alone can enjoy the benefits of their earnings (.08 Revenue Ruling 69-266, 1969-1 C.B. 151). None of the things listed above are items kept at the organization for other staff and leaders to use and are thus considered personal expenses.
Items that all staff could use for church activities are considered business-related expenses. These might include:
• Laptop bags
• Travel suitcases
• Robes/uniforms worn by leadership
The purpose is the principle in these situations. The difference is who can use them and how.
Reimbursements and How They Work
Reimbursements are used to repay someone who used their own money to buy something for an organization. Generally, reimbursements need approval by staff before the purchase is made. An expense request form helps to track what purchases were made and why. These forms should include:
1. The name of the person requesting the reimbursement,
2. Purchase date of the item,
3. The reason the reimbursement is being requested,
4. The department or description of the items (i.e., Kid’s Ministry or Easter Celebration),
5. The signature of the approving staff member, and
6. A place to attach the receipt if the form is a paper document or a way to scan and link the form if it is a digital copy.
What About Accidents?
Accidents happen every day, but it’s how you handle the situation that matters.
For example, if you picked the wrong card when you were in the checkout line at the store, it’s okay! Have the cashier cancel the transaction if you noticed before it was completed. If you missed it, and the purchase went through before you could stop it, or you got home and realized that the wrong card number was on the receipt, use this best practice.
Write a letter explaining what happened and include a check for the amount that was for personal use. Records of this will help the church to keep track and prevent it from showing up in taxable income that you receive throughout the year.
Believe me when I tell you, credit cards can be a very useful tool for your church or ministry. They can limit check use and provide greater ease of use for staff who buy items for their departments every day. There are card companies that allow you to assign cards to selected members of your organization and place differing spending limits on each one. This is useful for tracking budgets and maintaining accountability as well.
As a bookkeeper, I find it helpful to see specialized cards when putting together financial reports as it limits the questions I may have on transactions. So, if you decide to use them, make sure that you are aware and implementing best practices that will help keep you light-hearted and focused on your calling.
This article first appeared on StartChurch.com. Used by permission.