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Church Reporting of Independent Missionary Support

Question:

A church supports an independent missionary who is ministering overseas. The church receives gifts for the missionary and forwards those on for her use for both ministry and personal expenses, but it does retain oversight over the use of the funds. How should the church treat this arrangement for tax purposes? Should it report the full amount of support forwarded as compensation, or should it only report compensation in excess of business expenses?

Answer:

Based on the information presented above, the missionary should likely be classified as an employee for reporting purposes. However, not all missionaries should be classified as employees; the IRS provides detailed guidelines on the difference between an employee and an independent contractor, which are referenced in this previous blog post: Church Employee or Independent Contractor.

If a missionary is properly classified as an employee, the church has two options for reporting: report the full amount of compensation on Form W-2, and allow the missionary to deduct business expenses on her personal income tax return, or implement an accountable plan according to rigorous IRS requirements and report only compensation in excess of reimbursed allowable expenses. However, unless a church or organization is prepared to understand and fully implement IRS accountable plan rules and eligible business expense requirements, it is likely safest to report the full amount of support as compensation.

If a missionary is properly classified as an independent contractor, the church should report the full amount of her compensation on Form 1099-MISC as non-employee compensation. The missionary can then deduct her business expenses on Form 1040, Schedule C, as would any independent contractor.

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