Skip to main content

Missionary Training--Tax on Travel Reimbursement

By
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



Labels:

Comments

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
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...
Post a Comment
Read more

How can my ministry expenses be covered by the church?

By
     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...
Post a Comment
Read more

What is the best retirement account for a Minister?

By
       What are my options for retirement savings?                  Regardless of options, start now! You probably have learned about traditional and Roth IRAs. We have often found them well short of the benefits we will share here regarding Internal Revenue Code section 403(b) plans. These plans must be established by your employer (although you might need to be the initiator). They are funded in two ways—withholding from your paycheck at your option (called “elective deferrals”) and as initiated by the employer (matching or non-elective contributions). These contributions not only save income tax, but they also reduce the income you must report as subject to the 15.3% SECA tax. Further, at retirement with the cooperation of your church or Christian ministry the distributions to you can be tax-free to the extent of your qualified housing expenses. Many ministries also adopt what are often called “FICA alternative” be...
Post a Comment
Read more