Skip to main content

Church Reimbursing for Personal Expenses of Missionary

Question:

A church has a member who goes on a missionary trip every year. The church wishes to support him by paying for housing and travel expenses. What would be the best way to handle this so the donations are tax deductible to donors? Can the church member who is the missionary donate to the fund? Will this be income to the missionary?

Answer:

According to the Tax Code section 170(c)(1), the term “charitable contribution” refers to a donation to a church or other organization with the intent of the church having sole priority over the funds.

A church member may designate a specific contribution to an individual, but will not receive a deduction for it. Richard Hammar states “According to Revenue Ruling 62-113 a deduction will be allowable where it is established that a gift is intended by a donor for the use of the organization.” The IRS is concerned with “who has the say” over the money. If donors designate funds to a church and tell it specifically how to use the money, they are forfeiting their deductions. If a donor designates funds to a church and allows the church to decide how to use them, then it is deductible. The church is off to a great start by creating a fund because it shows that it has control and discretion over the funds. One way to contribute is to have a special offering for the missionary, but it is also acceptable for the members to designate their checks to the church controlled fund.

According to section 61 of the Internal Revenue Code, “Gross income includes all income from whatever source derived unless excluded by law.” A missionary is performing service for the church. If the missionary is reimbursed or directly paid by the church for personal, non-business expenses, then the church is compensating him for personal expenses that are includable in gross income for Federal tax purposes. Any business expenses that the church reimburses will not be gross income to the missionary.

Rather than contributing to the church fund, the missionary who is able to use his own funds, in part, to pay for mission activities should do so directly. To the extent that these costs relate to allowable business expenses, he can reduce his taxable income accordingly.

The church should reference other postings to this blog to assess whether the missionary is an employee (issue Form W-2 at year-end) or an independent contractor (Form 1099-MISC).

The members of my Federal Taxation I class at Maranatha Baptist Bible College in Watertown, Wisconsin have taken on the challenge of study and research to answer posted questions. Jonathan Panlilio of San Diego, California gets credit for this one.

Comments

Popular posts from this blog

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…

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…

Gifts Paid Out of Church Funds: Form 1099-MISC Requirements

Question:
 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? 
Answer: In the following answer, we assume that the couple are not employees of the church from whom the gift could not be viewed as compensation for their services. Also, the amount seems to be small enough to avoid any concerns of "private inurement."

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 …