10 Risks to Consider When Using a Church Debit Card

Does your church debit card reimbursements comply with IRS guidelines?

You, as a congregation, may allow your pastor or its employees to use a church debit card to cover all church-related expenses and, certainly, to pay for the church’s utility bills, insurance, and other expenses. While this may seem like a non-issue, the Internal Revenue Service (IRS) may decide that any debit card debts, gasoline, and meal costs are illegal. You can be fined for your pastor or employees’ mistakes.

Internal Revenue Service Audit

The IRS, through United States Code Title 26 — Internal Revenue Code, does not allow your employees to deduct the cost of maintaining a vehicle, travel costs, lodging, and lunches even when they are traveling for events. Your church may even owe back taxes when your employees receive an adjusted tax return with a penalty and a demand notice for payment of back taxes.

Meeting the Needs of Your Church

Each church is unique with specific financial needs, and credit cards processing companies offer different rates, benefits, and options. If your congregation is large, your church will benefit from a business credit card. If your congregation is small, a simple credit card in the name of the pastor or the signing authority may be adequate.

Risks to consider when using your church debit card include:

  1. IRS scrutiny or audit
  2. Unreported income
  3. Fines, Penalties
  4. Loss of good standing
  5. Embezzlement charges
  6. Withdrawal or theft of cash
  7. Liability for merchant disputes
  8. Failure to distribute funds
  9. Excess benefits
  10. Daily spending limits and over-limit fees

Unreported Income

When using a church debit card, the IRS requires your pastor to report all money given to him or her for their use regardless of its source or amount. Many congregations fail to follow tax laws and regulations because they simply do not know the tax laws and regulations. The IRS scrutinizes the use of a debit cards for churches. The church, its board members, and your reverend can all be arrested and fined for embezzlement.


Embezzlement is not fraud or theft. Embezzlement is taking an employer, customer, or church member’s money for personal gain. The offender has legitimate access to the money or property he or she takes, but the embezzler takes advantage of his or her position of trust to use the money or property illegally. Embezzlement includes:

  • Padding expenses, lying about what goods or services cost
  • Using money and returning it
  • Cashing members or associations’ checks in a personal account
  • Ledger errors that conceal reason for debit
  • Fictious employees on payroll, volunteer, or contributor’s list

Embezzlers Pay for Their Crime

Embezzlers may face a jail sentence or a fine and is usually ordered to compensate the victim for his or her loss. In addition to the criminal charge for embezzling, the victim whose money was taken can prevail in a civil suit against your nonprofit church, your board members, or your reverend.

The plaintiff can seek any or all remedies permitted by your state law to collect on the judgement against you or your organization. The first, and most highly recommended remedy, is a lien on your property, in this case, the church.

Church Debit Card or Church Credit Card

Your bank gave your church debit card to your signing authority. A debit card allows your reverend or board members to use the card or cards wherever credit cards are used, such as, Mastercard or Visa, to buy merchandise, rent vehicles or motel rooms, or pay for services.

The biggest difference between debit and credit cards is that the debit card gives the bearer access to cash directly out of a bank account. A credit card may be thought of as a line of credit.

Credit Card for Churches

Risks of Church Debit Card

Employee charge cards are generally needed by large churches that make large or frequent purchases on credit. You’ll want to choose a card with increased security features to alert you immediately if fraudulent users appear on a monthly statement or on itemized statements.

You need to make sure that those trusted with a church credit card are not making unauthorized purchases or covering their personal expenses with the church credit card. Four recommended credit cards for churches are:

  • Charity Charge Credit Cards
  • Christian Community Credit Union Credit Card
  • Capital One Spark Credit Cards
  • Chase Ink Preferred Business Credit Card

Charity Charge Credit Cards

Charity Charge cards pay donation processing fees which can be as high as 10 or 12% leaving your church or charity $10 to $12 more dollars to spend out of every $100 charitable contribution. You’ll receive an itemized receipt of all your tax-deductible donations, and you can have an unlimited number of cards for pastors, staff, and volunteers.

Charity Charge Business credit cards won’t ever hold you responsible for unauthorized transactions as they are backed by Mastercard’s Zero Liability and Theft Protection coverage.

Christian Community Credit Union

Credit unions dedicated to churches offer credit cards created to meet the needs of your church. The Christian Community Credit Union partnered with Visa Business Rewards to offer your church visa credit cards with no annual fee and a unique rewards program.

Your church earns one point for each $1 spent on the Christian Community visa card. The Christian Community Credit Union contributes to international missions, seminary scholarships, disaster relief, and new churches in your church’s name based on the number of points you’ve earned.

Capital One Spark Cards

You may prefer Capital One Spark credit cards for churches because Capital One pays a $500 bonus if you charge $4500 within 90 days after activation of the card. You can open Capital One Spark accounts for each activity within your church.

The Spark credit card pays 2% cashback on all purchases on each church credit card. Churches with good credit that make large purchases on credit cards benefit most from the Capital One Spark card. The Spark card may be an upgrade to your existing credit cards if your church credit history is good.

Though there is no annual fee in your first year, a $95 annual fee is charged at the beginning of your second year and every year thereafter.

Chase Ink Preferred Business

Chase Ink for preferred businesses will award your church 100k bonus points if you charge $15,000 within three months after the activation of your credit card. You must have a good strong credit rating to qualify for a Chase Ink Preferred Business Card.

Your church earns 3 points per dollar spent on travel expenses and 1% per dollar on all other purchases. Chase Ink charges a $95 annual fee. This card is especially beneficial to churches with members that travel internationally.

Credit History for Churches

Credit history for churches is important. Your church can lose its nonprofit status, if your credit history is not good, or you are not in good standing with the IRS and state licensing authorities. Your tax forms must be timely filed even if your organization is tax exempt.

Your organization is not in good standing if you owe back taxes to the IRS or your state department of taxation. Debit cards don’t contribute to your church’s credit history, and a church debit card along with associated accounts do not even show on your church’s credit report.

Liability for Merchant Disputes

Disputing a charge for returned merchandise, auto-renewed subscriptions, or broken or defective products is difficult when you use a church debit card because the merchant already has your money. If you were charged over the limit fees or fees for insufficient funds, you also need those charges reversed.

Penalties for Failure to Distribute Funds

If your church is a nonprofit organization exempt from paying income tax, it must disburse undistributed income within the same tax year as it received the donation or endowment according to church policy. Failure to distribute income under 26 U.S. Tax Code § 4942 can result in fines to $20,000.

Penalties for Excess Benefits

The church van brings members to church and Sunday school each week and takes members of the choir to sing in other churches or youth to attend a youth ministry-sponsored event. The church pays for the use of the vans and reasonable refreshment for participants on the third Sunday of each month and at special events.

The church spends $6,500.00 annually on the church van, both driving it and maintaining it. The IRS Section 4958 requires the IRS to fine both the pastor and the board of directors if the church debit card pays for these expenses. If the pastor drives the van, use of the van and income derived from it must be reported on his W-2.

The IRS considers use of the van an excess benefit transaction. The IRS fines the pastor 200% of the excess benefit plus penalties, unpaid or back taxes, and interest on them. Each member of the church board can be fined $10,000.00 for allowing the transaction.

Your Church Debit Card or Credit Card Use Policy

Your church absolutely needs a church credit card use policy if your church intends to let the pastor, the board, or church members use the cards to make purchases.

The essential policy must state who is authorized by the church to use the debit or credit card and what receipts and written descriptions of transactions must be submitted to the church with each use of the card.

The description must state how the transaction relates to church activities and the limit for the transaction. If expenses exceed the limit, they must be approved by a higher authority at the time of making the purchase. Individuals using the card must be aware of daily spending limits and the costs of over-the-limit fees on each card.

Related Posts