Missionary Training--Tax on Travel Reimbursement

Question:

A church member wishes to become a missionary, and will spend the next six months training out of state. His church wants to pay for both his training and his living expenses (e.g., food, travel expenses, etc.) during that time so he can stay fully committed to his training. Is this support considered taxable income?

Answer:

In this situation, the individual in training is considered either an employee or an independent contractor of the church because he is being compensated for helping the church fulfill one of its responsibilities, the Great Commission. It may turn out, though, that he will end up with little taxable income.

In determining whether the expenses paid by the church are considered taxable income, it is important to identify whether the individual's assignment is temporary or indefinite. The IRS provides a couple key indicators in determining the correct assignment. 

The first indicator considers the amount of time spent away from one's main place of work. A temporary assignment is both expected to last and does last one year or less. A job or assignment is considered indefinite if it is either 1) expected to last more than a year or 2) actually does last more than a year, even if initially expected to be temporary.

The second indicator considers one's tax home. A tax home is typically the city or general area where one's main place of business or work is located, regardless of the location of their family home. Any expenses that occur within one's tax home may not be deducted, and, if reimbursed, are considered taxable income. Also, if an assignment is deemed to be indefinite, a new tax home is established and any expenses reimbursed will therefore be considered taxable income.

Regarding the question posed above, the individual's training will classify as a temporary assignment as it is expected to be less than one year, is in fact, less than one year, and is away from his tax home. Therefore, assuming that the church follows an accountable professional reimbursement plan, the following expenses may be reimbursed without being considered taxable income. All excess support must be reported as taxable income on a Form W-2 or 1099-NEC.

        ~ Training/education expenses- may be fully reimbursed
        ~ Lodging expenses- may be fully reimbursed
        ~ Non-entertainment-related meals- may reimburse actual cost or based on location specific per diem rates found here.
        ~ Travel- airplane, train, bus, taxi's etc. tickets may be fully reimbursed. 

        ~ Travel at destination- may reimburse actual expenses or at the standard mileage rate.

For a more detailed discussion on Accountable and Nonaccountable plans see...

Accountable vs. Nonaccountable Professional Expense Reimbursement Plans