Who pays for cell phones?

Could you do ministry without access to a cell phone?

Pastors use them to post on Facebook, get directions to restaurants, text their family and play Candy Crush. 

They also use cell phones to schedule meetings, check on congregants, study for sermons, and stay in contact with church staff.

Is a cell phone a personal expense for the pastor or a ministry need the church should pay for?

Some pastors pay the entire cost out of pocket.  They use their personal phone for church purposes.

Other churches increase income to help cover some or all the costs.  This is very easy to manage but increases the tax burden for the pastor.  The compensation must be reported on the W-2 form, even if listed as cell phone allowance on paystubs.

The IRS does allow employers to provide cell phones without adding taxable income. It is important that the arrangement follows IRS guidelines.

Here is what the IRS says:

Non-Taxable (Not Considered Income):

If the church provides the cell phone primarily for non-compensatory business reasons,such as:

Enabling the pastor to be reachable for ministry-related duties,

• Coordination of church functions,

• Counseling, emergencies, or church administration,

• Then it is notconsidered taxable income under IRS rules (see IRS Notice 2011-72 and IRSPublication 15-B). In this case:

The phone is treated as a working condition fringe benefit,

The value of the phone and service does not need to be reported as income on the pastor’s W-2

Taxable (Considered Income):

If the church provides the phone as:

A perk, or

• As part of the pastor’s compensation package, without a clear business need, or

• If it’s provided in lieu of additional salary, or

• If it's used primarily for personal use without documentation or restrictions,

• Then the IRS could consider the value of the phone and/or service as taxable income,and it would need to be reported on the W-2.

A church can offer a pastor a cell phone allowance, but whether that allowance is taxable depends on how it's structured and documented.

How can you setup a non-taxable cell phone plan?

Option 1: Non-Taxable Cell Phone Reimbursement (Accountable Plan)

If the church uses an accountable reimbursement plan, the cell phone allowance can be non-taxable if:

Business purpose is established (e.g., the phone is needed for ministry duties),

The pastor owns the phone. Receipts or documentation of actual phone expenses are submitted.

Any excess reimbursement is returned to the church.

Under these conditions, the reimbursement is not included in the pastor’s income and not reported on a W-2.

Reference: IRS Publication 463 and Publication15-B (Fringe Benefits)

The church should have a board approved cell phone reimbursement policy. 

Option 2: Non-Taxable Scenario (IRS-Compliant)

Under IRS Notice2011-72 and Publication 15-B, a cell phone provided to an employee (including pastors) is not considered taxable income when:

The phone is provided for substantial business reasons, not as compensation.  The church owns the phone and the associated account.

The church maintains that the phone is for church-related duties such as:

Pastoral care and counseling

Emergencies

Worship planning andcoordination

Administrative communications

Personal use is incidental or secondary to business use (occasional personal use is permitted, similar to office computers).

In this case, thephone is treated as a working condition fringe benefit, excluded fromthe pastor’s income, and not reported on the W-2.

It is always recommended that you consult a tax professional when establishing compensation policies.