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

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...

How can my ministry expenses be covered by the church?

     How can my ministry expenses be covered?                            Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are in...

What health insurance coverage can I get as a minister?

    What are my options for health coverage as a minister?                       Many churches and Christian organizations have discontinued providing employer-paid group health plans. In lieu of paying out extremely expensive, one-size-fits-all insurance premiums, some have opted to provide taxable stipends and let employees shop for their own coverage. The good news: you can choose your own. The bad news: the stipend may not be enough and securing coverage can be complicated. Health care sharing plan options can be more economical. But they don’t qualify as standard health insurance: health care providers can balk, and the monthly subscriptions are not tax deductible. The Marketplace ( www.healthcare.gov ) offers alternatives, including advance premium tax credits to help with the monthly costs. Watch out for unpleasant surprises, however, since the tax credits must be reassessed when you file your annual Form...