Skip to main content

Educational Assistance by Churches for Their Missionaries

Question:

A church wishes to provide assistance/support for educational expenses of a member who is an international missionary. The missionary serves under a governing body ("mission agency") which raises support for its missionaries and provides all the proper tax documentation to the missionary.

The missionary already has his undergraduate degree, however, now is working on his master's. The church, through the advice of the governing body, has begun the initial stages of working on setting up a general educational assistance fund, along with proper documentation, oversight, and requirements for use of the fund.

Can this type of activity be structured in a way to where there would be no taxable income to the individual? Can the funds be used for educational expenses (tuition, books and fees) as well as travel expenses to the classes (lodging and air fare) as well as meals? Would a Form 1099-MISC need to be issued or can be this be looked at as some type of "accountable plan" in which the church is paying for the expenses and keeping track of such items as in accordance with the function and requirements of the fund? Church members would contribute to the designated fund and not specifically to the individual.

Answer:

IRS Publication 970, Chapters 11 and 12 (2010 version) offers a good overview of Employer-Provided Educational Assistance. Since the mission agency is considered the employer in most cases of missions support, it is important to work through it as donors seek to support advanced education.

Through 2012, employees whose employers help pay for their education costs through a qualified, nondiscriminatory educational assistance program may be able to exclude up to $5,250 per year. Otherwise, these payments are taxable, unless the reimbursement amounts can be treated as a qualified fringe benefit for work-related educational expenses. Since the mission agency is the employer and likely administers many missionaries' support, this is not likely the best alternative to the situation address above.

Publication 970 discusses qualifying work-related education: "Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. This additional education is qualifying work-related education if all three of the following requirements are met.
1. It is required for you to keep your present salary, status, or job,
2. The requirement serves a business purpose of your employer, and
3. The education is not part of a program that will qualify you for a new trade or business."

The information included in the question seems to indicate all three may be met: the oversight body is advising the missionary's supporting churches to understand the need (a recommendation that would not be communicated to financial donors if it was not necessary to maintain his status), an undergraduate degree is the typical missionary minimum requirement but advanced education will enhance the ability of the missionary to accomplish mission agency objectives, and the program is not intended to prepare him for a new trade--only to help him better serve as a missionary. If the education is not required by the mission agency, but "it maintains or improves skills needed in your present work" (Pub. 970) it can also qualify for non-taxable treatment.

Of course, donors must support these additional costs incurred by the mission agency. Contributions designated for this purpose should be advanced to the mission agency. The mission agency should require documentation from the missionary much as it likely already does for other nontaxable ministry reimbursements of expenses.

Pub. 970 states that the "following education expenses can be deducted.
1. Tuition, books, supplies, lab fees, and similar items.
2. Certain transportation and travel costs (see the Publication for details).
3. Other education expenses, such as costs of research and typing when writing a paper as part of an educational program."

Comments

Popular posts from this blog

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:

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:
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 missionariesHere are some similar blog posts that we have written in the past:

Form 1099 for Payments to Other Ministries
Form 1099 for Non-profit?
Fo…

Housing Allowance and Form 1099-MISC Reporting

Question:

A church provides its minister a housing allowance, but for other purposes it believes that it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC (in order to demonstrate the full earnings of the minister). If the church reports his compensation,including the housing allowance, on Form 1099-MISC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040?

Answer:

This questions brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2, not as independent contractors who receive Form 1099-MISC. On Form W-2, Box 1 for taxable compensation is reduced reflecting the church's designation of a portion of his pay as non-taxable. Then in Box 14, it typically reports as a memorandum item his additional non-taxable, housing allowance compensation. In the situation addressed in the question, this Form W-2 reporting may or may not a…

Heath Care Sharing Ministries and the SE Insurance Deduction

Question:

Can payments made to a health care sharing ministry (e.g., Samaritan Ministries, Christian Healthcare Ministries) which are exempt from the Affordable Care Act be deducted from income as a self-employed (SE) insurance deduction?

Answer:

First, to be technical, "health care sharing ministries" (IRS exemption D) provide participants an exception from Shared Responsibility Payments (ACA penalties), but don't connote other tax benefits.

Second, a health care share ministry does not qualify as health insurance. One does not pay what the IRS considers to be premiums, but instead shares the health expenses of others. And according to IRS Pub 535, in order for self-employed individuals to qualify for a SE insurance deductions they must be to pay premiums for qualifying health insurance.