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Church Reporting of Independent Missionary Support


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?


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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Review: Form 1099 Payments to 501(c)(3) Organizations


A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC?


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?

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

 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 …

Housing Allowance and Form 1099-MISC Reporting


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?


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…