Skip to main content

Tax-deductible Support of Missionary by Personal Friends

Question:

A church has a member preparing to go to the mission field. Before she leaves she is required to be debt-free, including college loans of $35,000. If friends give money to the church with the understanding that the funds may be used for the purpose of repayment, are the gifts deductible since they are given to the church?

Answer:

It is a very common experience that missionaries supported by a church have friends in the congregation. These contributions are tax-deductible as long as the church has established a fund and communicated its interest to support the missionary's endeavors. Typically, a church will forward these funds to the missionary's mission agency since it provides oversight in his or her financial matters. Churches that issue this compensation directly to the missionary must comply with the reporting requirements of the Internal Revenue Code--using Form W-9 to obtain the missionary's name, address, and identifying number and using Form 1099-MISC to report the taxable earnings. Yes, regardless of the use of the funds they are considered taxable support to the missionary.

The church's endorsement is very important. The church cannot simply become the conduit for otherwise personal gifts. The missionary must be one whom the church congregation believes is worthy of the support of its members financially and is pursuing a Christian work that it can endorse.

Friends and family who give money directly to the missionary apart from the church's endorsement of the missionary's ministry will not receive a tax deduction, nor are these gifts taxable to the missionary friend receiving them.

Comments

  1. What if the money is paid directly to the institution to which she owes money for her college loans? Does this become taxable income to her as well? Thank you.

    ReplyDelete
  2. Correct. It makes no difference whether the support is paid directly or indirectly. It is considered as compensation for her ministerial services. There are certainly ways to mitigate her tax costs, but those relate to her personal tax situation beyond the scope of a blog entry.

    ReplyDelete
  3. Thanks for this article, it answered our questions perfectly!

    ReplyDelete

Post a Comment

Popular posts from this blog

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…

403(b) Contribution Calculations Exclude Housing Allowance

Question:

Should 403(b) contributions and the subsequent match be based on the pastor's total income from the church (including housing allowance) or just from the salary minus housing allowance?

Answer:

According to Richard R. Hammar, J.D., LL.M., CPA, in his book 2015 Church & Clergy Tax Guide, “Section 107 of the tax code specifies that a minister’s housing allowance (or the annual rental value of a parsonage) is not included in the minister’s gross income for income tax reporting purposes. Therefore, it would appear that the definition of includible compensation for purposes of computing the limit on annual additions to a 403(b) plan would not include the portion of a minister’s housing allowance that is excludable from gross income." 

Hammar's Church Law and Tax Report is an excellent resource that many ministries should consider as annual subscribers.