June 28, 2016

Must a Missionary File a Schedule C?

Question: 

A church supports a missionary and follows up by issuing Form 1099-MISC reporting Non-Employee Compensation. The missionary was surprised to discover that he owed Social Security and Medicare Tax on this income. He submitted the following questions:

1.) Must I enter this amount on Form 1040, Line 12 as Business Income (I certainly do not consider myself a "business"), or may I report it in Line 21 as Other Income thereby bypassing SECA (Self-Employment) taxation?

2.) If I must add this amount to Line 12, may I then file Schedule C as if I were a business and therefore take business deductions?

Answer:

Since he is not an employee of the church which provides him partial support then it is correct that the church prepare and submit Form 1099-MISC. Reporting this amount on Line 21 as Other Income does not eliminate the SECA Tax obligation. However, reporting this income on Schedule C does enable the missionary to claim allowable business expenses against the support income. Many missionaries find means to reduce their overall tax obligation by virtue of benefits such as housing allowance designations, Form 4361 Opt Out from Social Security, and Form 2555 Foreign Earned Income Exclusion. But these provisions may be further explored in numerous blog posts on this site.

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