The primary concern in this issue is where is the pastor’s primary work location?
Home office:
If the primary location is a home office, then all business mileage from that home office is eligible to be paid as a business expense. The church should document that the home office is considered to be the primary location and then mileage to the church and then back home is eligible. All IRS rules on home offices would apply if the pastor wants to take home office expenses off his or her tax return.
Church office:
If the church has an office for the pastor at the church and considers that to be the primary location, then mileage from home to the primary location is not eligible to be paid as a business expense at any time. In this situation, mileage to church services, Bible study, meetings, etc at the church would not be considered business expenses. The IRS considers mileage from home to the primary work location to be commuting expenses. Eligible business mileage can be claimed from the primary work location to a secondary location (hospital, other business meeting location, etc) or from home directly to a secondary location but never from home to the primary work location. The church can still pay commuting expense to the pastor if desired, but it is considered to be taxable and is included on the pastor’s W2.
For either one:
Business mileage must be reimbursed on a vouchered system and proper documentation must be required for reimbursement. The church has the authority to decide what is reimbursed. The church can choose to pay for non-business mileage (commuting expense) if desired, it just has to be reported as taxable income. The church can also choose not to reimburse what would be considered to be business mileage. In this case the pastor can take it off his or her income tax return as an unreimbursed employee business expense.
See this FAQ as well:
Can mileage from the parsonage or my pastor’s home to the church be reimbursed as business mileage?