Financial Support for Individual Missionaries From Your Congregation
Here’s the scenario: Your church is sending a congregation member abroad on mission. The missionary will not be traveling with a mission agency, and so your church must directly support the missionary. How do you ensure that donations for the missionary’s benefit will be tax deductible? How can your church make sure that funds are properly managed for purposes of the IRS?
Thousands of missionaries travel abroad each year, sometimes without the institutional support of a mission agency. If your church decides to support one or more of these independent missionaries, it must make sure that it has practices in place to address the unique tax implications that accompany such support.
There are many considerations involved with sending or supporting a missionary. In particular, when a church decides to send a missionary directly, rather than support a missionary through a mission agency, it must carefully consider whether the missionary is mature enough go into the field without the institutional support of an agency, and whether the church is prepared to take on the extensive responsibilities of sending a missionary. A discussion of these important considerations is beyond the scope of this article, which focuses on one particular consideration: tax deductibility of donations for individual missionaries.
When a missionary goes into the field with the support of a local or international mission organization, that organization handles all tax-related issues, not a donor church. But when missionaries are sent directly by a church, the sending church takes on the responsibility in ensuring that donations to the missionary are properly taxed, if necessary, and that the church is abiding by all applicable tax codes.
Donations made to the church for the benefit of an individual missionary are tax deductible, provided that the donation furthers the church’s tax exempt purposes and provided the church maintains ultimate control over the funds. Many churches’ articles of incorporation will include mission work among the church’s charitable and religious purposes, which is the strongest support for donating to missions. However, it may be sufficient to say that the purpose of the church is to spread the Gospel, since “spreading the Gospel” would logically include missions abroad.
Look at your church’s articles of incorporation and make sure that mission work and spreading the Gospel are included in the church’s purposes. If they are not, consider amending your articles to add that language. Further, if a church is directly sending a missionary, the church’s board of directors should approve each missionary individually, and approve the mission as a ministry of the church. By doing so, the church strengthens the tax-deductible status of donations earmarked for mission work.
Next, it is important that donations to a church that are designated for an individual missionary remain within the full control and discretion of the church in order to preserve the tax deductible status of the donation. If the IRS believes that the church was used as a “pass through” entity to provide funds to an individual, the donation would not be tax deductible. For this reason, the church must exercise oversight over the funds and direct how they are used, making sure that the funds are used to further tax exempt purposes. The best way to do this is to establish consistent procedures for use by the church and missionaries.
Such procedures include significant input from the missionary. For example, the missionary should periodically report what funds he or she received from the church, and provide a report explaining where the money was spent. Mission expenses over a certain threshold (for example, $50) should be accounted for with receipts, and explanations should be given as to how the donations were used to further the mission. These reports need to be prepared and submitted at regular intervals, to allow the church to properly monitor the use of the funds to make sure that the mission donations are in fact used for mission work.
Any funds not used directly for mission work, namely, those funds used for the missionary’s individual living expenses, are taxable as wages. These wages should be reported as either employee or independent contractor wages. Whether your church needs to issue a W-2 or a 1099 depends on the church’s level of control and direction over the missionary.
If the church is “sending” the missionary, providing the supplies, manpower, and impetus for the mission, and exercising significant oversight of the missionary’s work, then the missionary is likely to be categorized as an employee. On the other hand, if the church has less control over the mission work, or if the missionary is going abroad to participate in a mission that the church is not involved in directly, then the missionary would likely be considered an independent contractor. In most cases, a missionary is characterized as an independent contractor, and a church would be required to issue a 1099 for all funds sent to the missionary that were used for living expenses.
Sending a missionary abroad can be a complicated matter—spiritually, emotionally, logistically, and financially. Before taking on this incredible responsibility, consider all the factors involved and protect both your church and the missionary from hitting a snag on the tax code.
Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum. Please contact Robert Showers at firstname.lastname@example.org or Elyse Smith at email@example.com for legal advice that will meet your specific needs.