Are You Funding the Mission or the Missionary?

Written by Founder Raul Rivera on Jul 12, 2016 in IRS Compliance

One afternoon a pastor called to ask an important question regarding funds provided to a missionary supported by their ministry. The church had sent $60,000 to the missionary who lived in Haiti to provide food, clothing, rent, and furnishings for an orphanage that the missionary had planted there. The church also sent another $30,000 to the missionary to provide personal expenses while living in Haiti.

The pastor wanted to know the best tax forms to provide the missionary with so that he could file taxes for the $90,000 he had received from his church. The church treasurer was sure that the missionary would only owe taxes on the $30,000 that was paid to him for living expenses; but desiring to abide by the laws of the land, the pastor wanted to cover all of his bases, and so he gave our office a call.

He was pleasantly surprised to find out that his treasurer was right after all.

Funding the mission vs. funding the missionary

How to treat missionaries for tax purposes has historically been a difficult concept for the church to grasp. The key to knowing how to treat payment to missionaries is to first determine if you are funding the mission or if you are funding the missionary.

How can you tell the difference?

Simply put, when you fund the mission, you are providing the resources necessary to conduct missionary activities.

When you fund the missionary, you are providing the livelihood of the missionary so that he/she can have his or her personal needs met to more effectively minister to the needs of others in the often-demanding arena of missionary work.

Let us take a closer look at what it specifically means to fund the mission and how to properly fund the missionary.

When you fund the mission, you are providing the resources necessary to conduct missionary activities.

Providing resources for the mission field

When you fund the mission field, whether locally, nationally, or internationally, you are providing resources to meet the needs of the work being accomplished. Here are some common examples of resources that churches provide to missions work:

  • Providing rent money for a facility
  • Allowing the church facility to be used for free summer education programs
  • Sending nonperishable food items and clothing to a church, orphanage, or an area affected by a natural disaster
  • Buying or sending materials to rebuild homes affected by flood or earthquakes
  • Sending money to buy office supplies or conference training materials for pastors of village churches in another nation
  • Sending medical supplies and equipment for medical missions

You can provide the materials or the finances to purchase them, whatever is best for that particular mission. When giving money to a U.S. tax-exempt corporation, you can simply donate the funds. Because these organizations are located in the United States, there is no strict requirement for your ministry to maintain control over the donations given.

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But when you send money overseas to support missions work, you must take much more strict measures to ensure the proper use of funds. Your ministry should set up the proper accountability procedure to be sure that the resources are being used in keeping with your tax-exempt purpose.

Revenue Ruling 68-489 permits U.S. tax-exempt organizations, like churches and ministries, to support foreign charities so long as the donations given do not jeopardize the organization's exemption under section 501(c)(3) of the Code.

When your church gives missions funds to another U.S. nonprofit, this rule does not apply. But when you send funds directly to a missionary overseas, even to a missionary on staff with your ministry, you want to take the following actions:

  1. Ensure that funds are being used to further your exempt purpose. By including language in the purpose statement of your organizing document (articles of incorporation) declaring that your church will conduct missions activities, you ensure that any missionary activity your ministry conducts or financially supports is already allowable based on the purpose of your organization.
  2. Set up clear parameters for the use of the funds so that they cannot be abused. Have a written agreement in place with the missionary or overseas mission organization receiving funding from your ministry. Be sure to clearly stipulate how funds may or may not be used. Require financial reports from the missionary.
  3. Maintain control over how the funds are used. This is accomplished by requiring regular financial reports from the missionary in charge of dispersing the funds to document proof of how the funds were used.

Financially supporting the missionary

When you financially support a missionary, you are providing him or her with income in order to meet the personal living needs he or she has while conducting missions work. The missionary is free to use those funds however he/she sees fit. 
In general, there are three primary ways to compensate a missionary for his/her service:

When you fund the missionary, you are helping to provide the livelihood of the missionary.

  1. Send money to another U.S. nonprofit and designate it to be given to the missionary. With this option, you are giving directly to another nonprofit that has ultimate use of the funds and may then direct that money to the support of the missionaries in its charge.
  2. Pay the missionary as a contractor. This is usually the best option when you are providing financial support for the living expenses of a missionary. Remember, when money is given to the missionary to provide resources for his/her work, it is non-taxable. However, when you pay money to the missionary for his/her own personal living expenses (rent, food, clothing, travel, vacation, etc.), you are paying him/her for a service, and thus, those monies are taxable.
  3. Pay the missionary as an employee. When your church sends a missionary to a region or country to perform a specific function such as starting a school, hosting crusades, planting churches or starting an orphanage, and your church provides the funding for the mission, as well as a job description and compensation for his/her service, the missionary is then considered an employee of the ministry.

(Recommended readings: "How to Pay a Contractor, and Form 1099-MISC." and "How to Hire Church Employees the Right Way; Part 1")

An employee has his/her work and wages controlled by his or her employer. Many missionaries are incorrectly paid as contractors. However, when your church hires a person to perform a task, controls how that task is done, and how much it will pay, that person is an employee. This not only applies to employees working at the church, but also to missionaries (employees) that work overseas.

Move forward in spirit and in truth

Whether funding the mission or funding the missionary, you are enabling the Word of God to go forth. Proper management of funds helps your ministry be certain that the mission and vision of your church is being fulfilled with integrity and purpose.

For further informationregarding how to operate your church’s missions program, consider reading the blogs listed below. Additionally, if you have questions about distinguishing the difference between an employee and contract worker, sign up for one of our conferences today, or call our office at 877-494-4655. One of our knowledgeable staff members will be happy to answer your questions.

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Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


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