As a missionary, the first step to figuring your taxes is figuring whether you're self-employed. CPA Michael Batts says in a 2011 paper that one key test is your church's authority over the mission. If the church sets your mission, location, goals and required standards, you're probably an employee. If you control your work and raise your own funds, you're more likely self-employed. The Internal Revenue Service provides added guidance on the distinctions.
Basic Tax Forms
Whether an employee or independent contractor, you have to file Form 1040, the standard income tax form. If you're self-employed, you also file Schedule C, for self-employment income, and Schedule SE for self-employment tax. Self-employment tax is what self-employed individuals pay toward Medicare and Social Security. If you object to Social Security on religious grounds, you can file Form 4361 to request an exemption. IRS Publication 517 provides details on how to do this.
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Types of Money
Even church employees can be self-employed. If, say, you're a licensed, ordained or commissioned minister rather than a lay person, any fees you receive for weddings or baptisms, for example, would count as self-employment income. Donations people give you to fund your mission -- as opposed to donating to the church -- count as self-employment income. If you're a minister and the church provides you with a housing allowance, you don't usually include that in your income.
For a short-term mission trip, you may be able to subtract expenses you pay out of pocket as an itemized charitable deduction to the church. On longer trips, if you're an employee, you can claim unreimbursed expenses as an itemized "2 percent deduction" on Schedule A. You add these deductions up, then subtract 2 percent of your adjusted gross income. Whatever remains is your write-off. If you're self-employed, you can write off travel and other expenses on long mission trips as a business deduction. IRS Publication 463 details the rules for deducting travel costs.
U.S. citizens normally pay federal income tax no matter where they live and work. If your mission lasts more than a year, you can claim the country you work in as your tax home and exclude the income you earn there. The amount of the exclusion adjusts every year for inflation, and it covers salary, self-employment earnings and allowances for housing, meals and moving costs. Even if you're a church employee and the church is based in the United States, income earned overseas is still foreign for the IRS' purposes.
- Michael Batts: Direct Missionary Activity Tax Considerations
- Internal Revenue Service: Earnings for Clergy
- Internal Revenue Service: Ministers Audit Technique Guide
- Internal Revenue Service: Foreign Earned Income Exclusion
- Internal Revenue Service: Foreign Earned Income Exclusion -- What Is Foreign Earned Income
- Internal Revenue Service: Independent Contractor (Self-Employed) or Employee?
- Internal Revenue Service: Social Security and Other Information for Members of the Clergy and Religious Workers
- Internal Revenue Service: Travel, Entertainment, Gift, and Car Expenses