12 Şubat 2013 Salı

Short-term Mission Support: Church Policy

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Question:

A local church congregation intends to raise designated gifts insupport of a member embarking on a short-term mission trip of less than oneyear. The funds will cover the member’s expenses, including personal livingexpenses. How should these funds be administered? What are the InternalRevenue Service reporting requirements?

Answer:

Since the member will be supported above and beyond his or herdirect travel, lodging, and meal costs, he or she is not classified as avolunteer. True volunteers receive no support for their personal livingexpenses. However, they may be reimbursed for actual travel costs without beingrequired to recognize the reimbursements as taxable income. Reimbursements inexcess of actual costs are taxable to a volunteer (IRS Publication 526).

We believe that there are two alternatives for the church toadminister the support.

LocalChurch Gives Member 100% of Funds Collected With No Accountability

The full amount of the support is classified as non-employeecompensation reportable on Form 1099-MISC, Box 7. It must not be reported as Box 3,Other Income, since the income is classified as compensation for servicesperformed by the individual as a representative of the local church.

The member is then responsible to report the earnings on Form1040, Schedule C, claiming allowable expenses. IRS Publication 463 describesthe ordinary and necessary expenses that may be deducted against the incomeearned. A good understanding of rules regarding per diem allowances will likely prove very helpful. Meals are only50% deductible. The net earnings are subject to both income and self-employmenttaxes.

LocalChurch Reimburses Member for Direct Travel, Lodging, and Meal Costs (meetingIRS documentation requirements) and Gives Remaining Funds as Support

Only the excess support provided above documented expenses isclassified as non-employee compensation reportable on Form 1099-MISC, Box 7.The church is responsible to collect and retain documentation as explained inIRS Publication 463. Again, a good understanding of rules regarding per diem allowances will likely provevery helpful. This second alternative will almost certainly result in a lowertax bill for the member since unreimbursed meals are only 50% deductible.

The member is then responsible to report the earnings on Form1040, Schedule C, but will only have allowable expenses to the extent he or shewas not reimbursed by the church. The net earnings are subject to both incomeand self-employment taxes.

No Form 1099-MISC is required of the church if the reportableamount is less than $600 per year, but the excess compensation remains taxableto the member.

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