Skip to main content

Church Support Directly to Foreign Minister

Question:

When should a Form W-8 be used rather than a Form W-9?

The background is that a church sends funds directly to a local pastor in a third world country. Should there be withholding taxes subtracted from these payments by the church? Also, what are the U.S. tax consequences for both the local recipient and also the U.S. church providing this support?

Answer:

To review, a Form W-9 requests the tax identification number from a payee who will likely be issued a Form 1099-MISC as an independent contractor of an organization. A Form W-8 (in its various forms) relates to the determination whether a US organization must withhold US federal income tax from a foreign individual receiving compensation from a US organization for services provided within that foreign country.

I did some research into this one since I've not run in to it before, but I will not end up being able to provide Internal Revenue Code sections on this one (just some wise advice from a seasoned veteran of foreign missions). Every missionary client I've worked with who provides some level of support to local ministers within the congregations he serves does so out of his own support. At times, perhaps, a church may wish to help foreign ministers but does so under the direction of a US missionary (and sends money to him, not to the foreign individual).

I consulted a client in a third world country who has quite a bit of experience with this type of situation. He strongly recommends against the practice intimated in the question. While not wanting to be judgmental and realizing that some US missionaries may fail in their stewardship as well, he noted that the foreign individual is not typically under the same accountability level as virtually all US missionaries (to local US church, to mission board, to guests on the mission field from the local US church, etc.). Further, the church will not likely be as familiar with the local culture as a trusted missionary on the field who can monitor the situation.

Getting back to the question, if the funds are sent to the US missionary (either through his Board or directly), then the missionary must report the receipt as income, but will also likely have a corresponding deduction for ministry expense in supporting the foreign individual.

Comments

  1. ajwarner1@gmail.comJanuary 16, 2010 at 3:31 PM

    As a point of clarification -- could the payment(s) to the local pastor be characterized as a 'donation' thereby avoiding any IRS reporting requirements?

    ReplyDelete
  2. The minister is providing ministerial services. His compensation cannot be classified as a donation. This, of course, would be true in the US as well.

    ReplyDelete

Post a Comment

Popular posts from this blog

Qualified Small Employer HRAs

On December 13, 2016, President Obama signed the 21st Century Cures Act, allowing qualified small employers to offer Health Reimbursement Arrangements (HRA) that follow certain terms.

After the Affordable Care Act was passed, the IRS originally determined that an HRA was not a qualified group health plan. The Cures Act overrules this decision. HRAs are again an option for qualifying small employers.

To be eligible, the small employer must have fewer than 50 employees and must not offer a group health plan to any of its employees.

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must be subject to the following terms.
No salary reduction contributions may be made (i.e., 100% employer-funded).Employer must receive proof of employee’s minimum essential coverage.Reimbursements must be for qualifying medical expenses.Reimbursements for any year cannot exceed $4,950 (or $10,000 for family coverage), which will be adjusted annually for inflation.Employer must offer the …

Housing Allowance when Bartering for Rent Payments

Question:

If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?

Answer:

Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence. The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.

See a past MinistryCPA post regarding this topic: http://ministrycpa.blogspot.com/2016/09/services-to-church-in-lieu-of-rent-of.html

Mission Trips Involving Both Charitable and Personal Time

Question:

A church group went on a two-week mission trip, and a few of the members stayed an additional two weeks for personal time. Will the members who stayed the two additional weeks be able to deduct expenses from the trip?

Answer:

IRS Pub 526 covers the topic of Charitable Contributions and, more specifically, travel expenses associated with charitable trips. The publication states that travel expenses will be deductible “if there is no significant element of personal pleasure, recreation, or vacation in the travel.” The publication also states, “The deduction for travel expenses won't be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you don't have any duties, you can't deduct you…