A new year is here, which means the IRS has updated and reassessed the standard mileage reimbursement rates that calculate the deductible costs for an individual who utilizes his or her vehicle for business, charitable, medical, or ministry purposes.
It is crucial that churches and ministries keep up to date with the current rates in order to track their mileage used on their personal vehicles for ministerial purposes.
As a bookkeeper, I encourage all church leaders to learn as much as they can about mileage reimbursement. Having this knowledge can really benefit the organization and gives them the ability to educate their workers and volunteers.
IRS UPDATES TO MILEAGE RATES
Beginning on January 1, 2020, the standard mileage reimbursement rates for the use of one’s personal vehicle (cars also vans, pickups or panel trucks) are listed below:
• 57.5 cents driven per mile for business use (down 0.5 from the rates from 2019)
• 17 cents driven per mile for medical and moving mileage (down 3 cents from 2019 rates)
• 14 cents driven per mile for charitable contributions mileage
Knowing these rates is very important, but I would love to educate you on how to manage these reimbursements properly.
Now that you are currently updated with the rates for the new year, I’m sure you are wondering how to handle mileage reimbursements.
HANDLING MILEAGE REIMBURSEMENTS
Mileage reimbursement doesn’t only apply to someone using their vehicle for ministry purposes, who then uses the church credit card to fill up their gas tank. It’s a little more complex than that. Most churches are not aware of this until they’re told after the fact.
An example would be if a church filled up the gas tank of an employee or volunteer. The amount paid to fill up the gas tank now becomes taxable income. Many would say this makes no sense and that it shouldn’t be this way, but it’s true, and there is a proper way to handle this situation.
In the event that you just are filling up an employee’s or volunteer’s gas tank, it will become taxable income to that person because the act of filling up his or her gas tank is technically being done in reflection for a service that he or she provided to the church or ministry (i.e., driving somewhere for the church). This is a very common mistake among churches and ministries, but I am here to show you how to properly handle mileage reimbursement for anyone who needs it in your organization.
CALCULATING MILEAGE REIMBURSEMENTS
There are two general methods that can be used to reimburse an employee or volunteer for the mileage he or she drives for church purposes: The actual expense method and the standard mileage rate method.
Let’s break down the two different methods so that you know which is better for the types of reimbursements you will be dealing with.
1. Actual Expense Method
This method typically takes the most work when tracking your reimbursement. As is stated in the name of this method, an individual can deduct the actual cost of using their vehicle for ministry or charitable purposes, plus the depreciation of the vehicle.
When you are using this method, you have to be careful to record and track the correct information. Even though this method can be very burdensome, it can result in a large deduction for the individual.
If you choose to reimburse your church employees or volunteers using the actual expense method, then they must keep a record of all costs incurred for their vehicle each time they used their vehicle for church or ministry purposes. Here is a list of some items that the employee or volunteer must keep track of includes, but is not limited to, the following:
• Gas
• Repairs and maintenance
• Care repair
• Meals from conferences
• Depreciation of the vehicle and improvements
• Insurance
• Towing charges
• Car washes
• And more
Here is an example of how the actual expense method works:
Jessica is a church youth leader who drives her car 20,000 miles during the year. She also spent $7,000 on car expenses during the year. Of the total miles driven, 6,000 miles were attributed to her youth leader work for the church: picking up youth to take them to church, volunteer work with the students, serving the homeless, and ministering to those who are in group homes. Jessica can claim 30% (6,000/20,000) of the cost of operating her car as a business expense for her work as a youth leader. Of the $7,000 spent on car expenses, $2,100 may be deducted for mileage reimbursement.
(Recommended reading: “What Your Church Needs to Know About Reimbursements, Part 1”)
2. Standard Mileage Rate Method
The more common method and, as some would say, an easier method for tracking mileage reimbursement is the standard mileage rate method. The rules and requirements for this method less strict and many churches that have used our StartRIGHT Service have found that this method is an easier process for both the church and individual needing mileage reimbursement.
The standard mileage rate method requires that the driver keep track of how many miles he or she drives for church or ministry purposes, not the actual expenses of the vehicle, as noted in the method above. In addition to keeping track of the mileage, the individual should also keep track of the following things as well:
• The date of which the miles were driven,
• The destination to where the individual has traveled,
• And the purpose for which the miles were driven.
YOUR NEXT STEPS
This information you have received in this blog is a great asset and is an excellent starting point for pastors and church leaders. Making sure your church is keeping up with different IRS requirements can seem intimidating. However, with the right information and the right partners, you can feel confident in mileage reimbursement and the different ways to handle it in the correct ways.
If you are in need of a team to help you with your church’s bookkeeping and accounting responsibilities, then we recommend using our bookkeeping service. Our bookkeeping service was designed to meet the needs of pastors and church leaders just like you. Plus, our bookkeepers are ministry-minded and will help make sure that your church’s financial decisions are in compliance.
This article originally appeared on StartChurch.com and is reposted here by permission.