A church is sending a married couple on an unpaid short-term missions trip overseas. The congregation has expressed interest in supporting them during their trip. What is the best method to support this couple?
Let us offer two options for consideration.
First, the congregation gives directly to the church and designates that the amount goes toward the couple's mission trip. Over time, this fund would accumulate and then be given to the couple before leaving for their trip. This method would require preparation and filing of a Form 1099-MISC at the end of the year.
The second option to consider is likely the better of the two. While the couple is on their mission trip, they will submit records of their expenses to the church and be reimbursed for that amount out of the same fund that is designated for them - likely a "Special Projects-Missions Fund" of some sort. Unlike the first method mentioned, this would not require a filing of Form 1099-MISC if 100% of the funds were used for qualifying expenses.
The trip is said to be an unpaid short-term missions trip overseas. "Unpaid" connotes that the only expenses reimbursed or covered by the funds relate to allowable expenses when one is traveling for charitable purposes. Readers may wish to reference IRS Publication 526 (pages 5 and 6) regarding travel. These expenses generally include transportation to the destination, local transportation, lodging and meals.
If there is a component of support in excess of these costs, then, yes, it will be taxable subject to Form 1099-MISC reporting if the excess exceeds $600 in a calendar year.
Therefore, we recommend the second method. The support will not be taxable to the couple unless it exceeds their qualifying expenses. To provide support above qualifying expenses implies a measure of taxable compensation. The taxable compensation component, if any, is subject both to income tax along with their other taxable income and self-employment tax (once SE income exceeds $400).