Skip to main content

Missionaries Receiving Support Directly From Individuals

Question:

A missionary receives all of his income from donations through his home church and specific individuals. Is all of his income taxable? Is he self-employed?

Answer:

Monies received by a missionary in support of his work are taxable. Even though all of his income comes from "donations", the income is compensation for the services that he is performing as a missionary. 

According to IRS Minister Audit Technique Guide, “Contributions made to or for the support of individual missionaries to further the objectives of their missions are includible in gross income (Rev. Rul. 68-67, 1968-1 C.B. 38)”. The Minister Audit Technique Guide also gives an example of a court case that discusses this topic, "In the Charles E Banks and Rose M Banks v. Commissioner, T.C. Memo. 1991-641, case a structured and organized transfer of cash from members of the church took place on four special days of each year. Prior to making the transfers, members of the Church met amongst themselves to discuss the transfers. The amounts of the transfers were significant. Several members testified in Court. Their testimony indicated 'the primary reason for the transfers at issue was not detached and disinterested generosity, but rather, the church members' desire to reward petitioner for her services as a pastor and their desire that she remain in that capacity.' The Court ruled the transfers were compensation for services hence included in gross income." 

The "specific individuals" referenced in the question above should be contributing their support through a church or other Internal Revenue Code section 501(c)(3) organization such as a mission agency. These organizations are "in the business" of engaging missionaries to perform gospel work in their appointed location and duly report their support as taxable compensation.

Only contributions made to a church or recognized not-for-profit organization are tax deductible by donors. Gifts by individuals to other individuals for whom no services are provided are non-taxable gifts to the recipients.

Ministers by definition of the Internal Revenue Code are self-employed for purposes of the federal self-employment tax. Missionaries solely supported through mission agencies typically are provided either Form 1099-MISC (if the agency classifies its missionaries as independent contractors) or Form W-2 (if the agency classifies its missionaries as employees). In both cases, agencies typically do not withhold taxes since ministerial earnings are exempt from mandatory withholding. Some agencies, however, do provide for elective withholding of federal and state income taxes (but not FICA taxes) for the convenience of their clients who would otherwise be required to make estimated tax payments. 

See an earlier post regarding this complex topic:


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...