Skip to main content

"Start-up" Missions Support by a Local Church

Question:

After participating as a volunteer for three years, a member of a church congregation entered full-time mission work in a foreign country. She began going for about 3 or 4 months at a time and then returning to the U.S. for a few weeks to a month to visit and raise support. In 2007, she paid her own way. In 2008, she began raising support. Some people gave money directly to her, others gave money to the church for her support. In addition, the church sponsored her for support in 2008. She was not required to report back to the church’s internal mission board under any accountable plan arrangement. What advice can you offer to the members of the church’s mission board to better serve its missionary?

Answer:

The IRS will consider her to have entered the “business” of receiving self-employment income for the performance of religious services—representing donors and other organizations (the church) in providing services to people in a foreign country.

I encourage the mission board to establish a designated fund to manage the collection and disbursement of her support. This provides donors a vehicle for tax-deductible contributions. Generally, gifts given directly to her by individuals will be non-taxable to her and non-deductible by them – they are not considered to be rendered as an exchange of services for compensation.

The missionary will need to file Schedule C and deduct her travel and other business expenses as would any other self-employed person (e.g. she’ll need to keep a mileage log and use the standard auto allowance). Since she is not a minister (as defined by the IRS in Publication 517 and other sources that describe sacerdotal duties, etc.), she will not be eligible for a housing allowance and other ministerial tax provisions. She will need to determine whether she will qualify for the Foreign Earned Income Exclusion.

The local church mission board could opt to recommend employment status with the church. Then, FICA taxes could be withheld and matched (as a non-ministerial employee of a church or Christian organization) and an accountable plan for her employee business expenses could be
established.

Comments

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a

Review: Form 1099 Payments to 501(c)(3) Organizations

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS 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: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries

Form 944 or 941 Filing for Churches

Question:   A new church filed for an employer identification number (EIN) recently. It received notification from the IRS about the EIN, stating that the church must file Form 944 by the following January deadline. The church has no non-ministerial staff members. Since income tax withholding is elective by ministers and none of the pastors has elected to request non-mandatory withholding is the church required to file Form 944 annually? Also, a quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed? Answer: According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944.  The IRS  Ministers Audit Technique Guide  explains in further detail a minister's treatments for social security, Medicare tax, Fed