Do Missionaries Pay Taxes?

Tax Status for Missionaries

Missionaries, despite being religious workers, are not exempt from paying taxes. Even if they live outside the country, they must file their taxes as long as they are U.S. citizens. Missionaries generally file their taxes as self-employed individuals, reporting any stipends and honorariums on a Schedule C. They can also take advantage of certain tax provisions available to members of the clergy or religious workers.

Earning income in a foreign country can add another layer of complexity to a missionary’s taxes. Fortunately, the tax code provides a credit to offset foreign-earned income to help alleviate potential double taxation. Additionally, some countries have entered into tax treaties with the U.S. that may allow U.S. citizens to be exempt from local taxation. But, the obligation to pay state income taxes for missionaries varies from state to state and depends on residency. Missionaries must examine the facts and circumstances of their missionary trip and the state laws to determine whether they need to file state income taxes.

Self-employed taxpayers, including missionaries, are subject to paying self-employment taxes. To apply for an exemption, missionaries must file either Form 4361 to elect personal exemption or Form 4029 if their sect or division is already recognized as exempt from social insurance. Missionaries’ wages are subject to self-employment tax unless they elect for an exemption, even if they receive wages from a sponsoring church and are considered an employee for other purposes.

Charitable Contributions to Individual Missionaries

Missionaries often receive donations from congregation members to help them go abroad and spread the faith. Depending on the purpose of the donations, missionaries might have to include them in taxable income. Generally, if the donation is restricted to a specific purpose, such as buying religious texts to distribute, then the donation is a gift. When the missionary has sole discretion over the use of the funds it counts as income.

How Does a Missionary Report Their Donations for Tax Purposes?

Missionaries should report their donations for tax purposes by keeping detailed records of all contributions they receive, including the name and contact information of the donor, the amount of the contribution, and the date it was received. The organization that received the contribution should also provide a receipt to the donor, which should include the name of the organization, the date of the contribution, and the amount donated.

For tax purposes, the missionary should report the total amount of donations received on Schedule A of their tax return. If the total amount of donations received during the year exceeds a certain threshold (currently $250), the missionary should also provide written acknowledgment to the donor that includes the organization’s name, the amount of the donation, and a statement indicating whether or not any goods or services were provided in exchange for the donation. If the missionary receives non-cash donations, such as clothing or food, they must also keep detailed records of these donations and report them on their tax return at fair market value.

Donations by Parents

Mission trips, especially those that are overseas, can be quite expensive. Often, missioners are encouraged to raise funds for their trips by asking family and friends for support. When someone who is not going on the trip, such as a parent, makes a donation to a religious organization to support their child’s trip, the donation is tax-deductible. However, if the parent gives the money directly to the child or to the church to specifically buy the child’s plane ticket, the deduction is not tax-deductible. It is important to ensure that donations are properly reported by the organization’s finance staff on contribution acknowledgments.

Tax Strategies for Missionaries

Missionaries face unique tax challenges due to their work and lifestyle. Fortunately, there are tax strategies that can help them save money and maximize their tax benefits. Here are a few tax strategies that may be helpful for missionaries:

1. Foreign Earned Income Exclusion: Missionaries who live and work abroad may be eligible for the Foreign Earned Income Exclusion (FEIE). This allows them to exclude up to a certain amount of their foreign earned income from U.S. income tax. In 2023, the maximum exclusion amount is $120,000 To qualify for the FEIE, missionaries must meet either the Physical Presence Test or the Bona Fide Residence Test.
   
2. Exemption from Self-Employment (SE) Tax: Missionaries who are considered self-employed may be eligible for an exemption from the SE tax. To qualify for this exemption, missionaries must meet certain requirements, such as being a member of a recognized religious group or order, and filing Form 4361 with the IRS.
   
3. Married Couple Missionaries: Married couple missionaries may be able to take advantage of the spousal IRA contribution. This allows the non-working spouse to contribute to an Individual Retirement Account (IRA) based on the working spouse’s income, up to a certain limit.
   
4. Housing Allowances: Missionaries who receive a housing allowance may be able to exclude that allowance from their taxable income. To qualify for this exclusion, the housing allowance must be used to pay for actual housing expenses, and must not exceed the fair rental value of the housing.

These tax strategies can help missionaries save money and reduce their tax burden. However, it is important to consult with a tax professional who is familiar with the specific tax issues faced by missionaries to ensure compliance with tax laws and regulations.