IRS guidelines for a new year
Are you aware that you should be tracking the mileage put on your personal vehicle when used for ministerial purposes? Did you know that these miles, as well as repair and maintenance costs, can be reimbursable? As we enter 2021, we wanted to make sure you have the most recent IRS updates and changes to the standard mileage reimbursement rates; this article will walk you through how to calculate the deductible costs for using your vehicle for business, charitable, medical or ministry purposes.
It is vital that churches and ministries keep up to date with the current rates, as they can change from year to year. Having this knowledge can be beneficial as it gives you the ability to educate employees and volunteers.
IRS UPDATES TO MILEAGE RATES
The IRS has announced the 2021 standard mileage rates for business, medical, and other uses of an automobile; the business standard mileage rate is:
• 56 cents per mile; a 1.5 cent decrease from the 57.5 cents rate for 2020
• 16 cents per mile when an automobile is used to obtain medical care (IRS Code § 213; see IRS Checkpoint article.) This is a 1-cent decrease from the rate of 17 cents per mile that was in effect for 2020.
• 14 cents per mile for charitable use (the same as 2020)
HANDLING MILEAGE REIMBURSEMENT
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. An example would be if a church filled up the gas tank of an employee or volunteer; did you know the amount paid to fill up the gas tank now becomes taxable income for that individual? Many would say this makes no sense and that it shouldn’t be this way, but it is, and there is a proper way to handle this situation.
If you are filling up an employee’s or volunteer’s gas tank, it will become taxable income to that person. This is because the act of filling up their gas tank technically is done in reflection for a service that they provided to the church or ministry (i.e., driving somewhere for the church). This is a widespread mistake among churches and ministries, but we are here to show you how to properly handle mileage reimbursement for anyone who needs it in your organization.
CALCULATING MILEAGE REIMBURSEMENTS
Two general methods 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 take a closer look at these two methods to know which is better for the types of reimbursements you will need.
1. Actual Expense Method
This method typically takes the most work when tracking your reimbursement. As stated in this method’s name, 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, they must record all costs incurred for their vehicle each time they used their vehicle for church or ministry purposes.
List of items that the individual must keep track of that includes, but is not limited to, the following:
• Repairs and maintenance
• Care repair
• Meals from conferences
• Depreciation of the vehicle and improvements
• Towing charges
• Car washes
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 was attributed to her youth leader related 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.
2. Standard Mileage Rate Method
As some would say, the more common method is an easier method for tracking mileage reimbursement is the standard mileage rate method. The rules and requirements for this method are less strict, and many churches that have used our StartRIGHT Service have found that this method is a more painless 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 vehicle’s actual expenses, as noted in the method above. In addition to keeping track of the mileage, the individual should also keep track of the following things:
• 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.
Using the example above: Jessica tracked 6,000 miles on her personal vehicle for ministerial purposes, so $3,360 (.56 x 6,000) may be deducted for mileage reimbursement. You can see at a glance why this is the preferred method for many churches and ministries.
First published on StartChurch.com. Used by permission.