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Missions Trip: Funds in Excess of Actual Expenses

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Question:

A church wishes to help a college student with a foreign mission trip. Donations were gathered by the church and travel expenses were reimbursed as incurred. At the end of the summer the church wrote a check to the student for the excess funds above expenses. Should this church give the college student either a Form W-2 or a 1099-MISC?

Answer:

Yes, the church will be required to file Form 1099-MISC for the compensation component of the funds disbursed to the college student (the amount in excess of the reimbursements).
IRS Publication 1828 says “A church or religious organization must use Form 1099-MISC in any calendar year for… compensation paid to non-employees.” The payments in excess of actual expenses are considered compensation for services performed. 

This situation is unusual. Typically, when a church receives funds from its congregation, those funds are no longer under the individual's control, but under the church's control. This means that the church has the authority to distribute these funds as it sees fit. With that in mind, the excess funds are not required to be disbursed to the individual, but may stay in the possession of the church, to do with as it sees fit.
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