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SE Tax Trauma


Missionaries, as most ministers, are subject to both federal and state income taxes and self-employment tax.

Consider the following example. An independent missionary on deputation earns enough income (after deducting all allowable travel and ministry expenses) to owe $6,000 in self-employment (SE) tax on his support. Due to write-offs against his income taxable earnings (housing allowance, personal itemized deductions, personal exemptions for his family members, etc.) he not only owes no income tax, he receives $3,000 of credits that can gain him a refund check from the IRS even though he paid nothing in. Then comes his SE tax--ouch! Instead of receiving a refund, he must write the IRS a check for $3,000.

He asks, "Is there any legal way for me to file differently and avoid the Form 1040, Schedule SE tax?


Missionaries in the above situation should consider at least two matters.

First, travel and other business expenses incurred while on deputation reduce reportable SE earnings. Many mission agencies require their missionaries to submit regular reports documenting their financial activity. Not only is this good stewardship on behalf of the supporting churches and individual donors, it makes good tax sense for the missionary. The mission agencies then issue to their missionaries Form W-2 which include only the portion of their support that is taxable after excluding reimbursements sent to the missionary for tax-deductible expenses.

Second, a missionary may consider applying for exemption from SE tax by filing a timely Form 4361. See my answer to Question 9 in the link below to my website:

Top 10 Questions that Pastors ask Tax Preparers

One final "reality check." Paying the 15.3 percent SE tax is a burden and reality that most missionaries and ministers face. While non-ministers have the 7.65 percent FICA (social security and Medicare) tax withheld from their gross earnings and matched by their employers, ministers must pay "both halves" but can pay this tax on their net (after business expenses) earnings. Accordingly, missionaries are well advised to either make quarterly federal estimated tax payments or to request federal income tax withholding by their mission agencies.


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We have written similar blog posts on this topic in the past (listed below), but we figured it was a good time for a review. 

Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The 2015 Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC. 

The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC:
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Form 1099 for Payments to Other Ministries
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Gifts Paid Out of Church Funds: Form 1099-MISC Requirements

 A church gave a wedding gift of $1000 to a couple who are church members. No goods or services were provided by the couple in exchange for the gift.  Is a Form 1099-MISC required? 
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Accordingly, no Form 1099-MISC is required. According to the 2017 IRS Instructions for Form 1099-MISC a Form 1099-MISC is only required for payment of goods or services. The requirements are as follows:
"File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year:  At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8);  At least $600 in:  1. Rents (box 1);  2. Services performed by someone who is not your …