Do missionaries pay taxes? Understanding IRS rules for missionaries

Missionaries play a unique role in society, often working tirelessly to support their communities, spread faith, or provide aid in remote regions.

But while their mission may be spiritual or philanthropic, their tax obligations remain firmly grounded in US tax law.

The question is – do missionaries pay taxes, and if so, what IRS rules apply to them? Spoiler alert: the answer is yes. But the “how” and “what” can get complicated.

In this article, we'll break down the tax rules for missionaries, discuss what types of income are taxable, explore some common tax-saving strategies, and review IRS filing requirements.

Let’s dive in.

Tax obligations for missionaries: Employee or self-employed?

When it comes to tax classification, missionaries often have a “dual tax status”:

1. Employee for federal income tax purposes.
2. Self-employed for Social Security and Medicare tax purposes.

This dual status can sometimes create confusion. Although missionaries may be employed by a church or religious organization, for payroll tax purposes, they are considered self-employed.

This means their wages are not subject to Social Security (FICA) and Medicare withholding. Instead, missionaries must pay the self-employment tax, which covers Social Security and Medicare contributions.

Example: Let's say you receive a salary of $30,000 from your sponsoring church. Since you're considered self-employed for Social Security purposes, you’ll need to file Schedule SE and pay self-employment taxes at the rate of 15.3% on that amount, which amounts to $4,590.

Missionaries have the option to file Form 4361 to request an exemption from paying self-employment tax if they oppose it on religious grounds. However, this exemption also waives any future Social Security or Medicare benefits.

Taxable income for missionaries

Missionaries may receive different types of income, such as wages, housing allowances, and support payments.

Here’s a quick breakdown:

1. Wages and stipends

Wages paid by a church or religious organization are typically taxable and reported on Form W-2. If you’re an independent missionary, you might receive Form 1099-NEC instead, which means you must report the income as self-employed earnings.

2. Housing allowances

Missionaries often receive a housing allowance, which can be excluded from taxable income if it’s designated in advance and used to pay for housing expenses (rent, mortgage, utilities, etc.).

However, any amount that exceeds the actual expenses or the fair rental value of the home must be included as taxable income.

Pro tip. To claim the housing allowance exclusion, ensure the church or organization providing the allowance officially designates it in advance. Otherwise, the exclusion cannot be applied.

3. Donations and support payments

If donors make contributions to a church or organization for your support, those payments are generally not taxable.

However, if donations are made directly to you or you have sole discretion over how to use the funds, those payments are considered income and must be reported.

Example: If your church collects $10,000 in donations to fund your overseas mission, and the funds are restricted for purchasing religious materials, you don’t need to report it as income. But if you receive $5,000 directly from a family member to cover your personal expenses during your mission, it counts as taxable income.

4. Love offerings and honorariums

Occasionally, missionaries receive “love offerings” or honorariums for speaking engagements, performing services, or participating in events.

Even though these payments may be considered gifts by donors, the IRS often views them as compensation for services and therefore taxable.

IRS filing requirements for missionaries

Missionaries have specific filing requirements depending on their income and employment status.

Below are the primary forms you’ll need:

• Form 1040: The standard income tax return. All missionaries must file this form.
• Schedule C: Used to report profit or loss from a business if you’re considered self-employed and receive Form 1099-NEC.
• Schedule SE: Used to calculate self-employment tax (15.3% of net earnings).
• Form 4361 or 4029: Filed to request an exemption from self-employment tax due to religious opposition.
• Form 673: Allows US citizens working abroad to exempt some or all of their foreign earned income from federal tax withholding.

For missionaries serving overseas, additional forms may be required:

• Form 2555: Used to claim the Foreign Earned Income Exclusion (FEIE).
• Form 8938: Required if you have foreign assets above a certain threshold.
• FBAR (FinCEN Form 114): Report of Foreign Bank and Financial Accounts for balances exceeding $10,000.

NOTE! Even if you’re serving abroad, you still have to file a US tax return. Missionaries are subject to the same tax filing requirements as other US citizens, regardless of where they reside.

Tax-saving strategies for missionaries

Missionaries can take advantage of several tax-saving strategies. Here are some of the most common:

1. Foreign Earned Income Exclusion (FEIE)

Missionaries living and working abroad may qualify for the FEIE, which allows you to exclude up to $120,000 of foreign earned income (2023) from US taxes.

To qualify, you must meet either the Physical Presence Test (330 days outside the US in a 12-month period) or the Bona Fide Residence Test (reside in a foreign country for an entire tax year).

2. Housing allowance exclusion

This exclusion applies only if the housing allowance is properly designated by your employer.

It’s a great way to reduce taxable income, but you must keep detailed records of housing expenses to back up the exclusion.

3. Retirement savings contributions

Missionaries can contribute to retirement plans like a Roth or Traditional IRA, and if married, they may be able to take advantage of spousal IRA contributions, allowing the non-working spouse to contribute based on the working spouse’s income.

4. Charitable contributions

If you support your own mission or donate to other organizations, keep receipts and documentation.

You can claim these contributions as itemized deductions, lowering your overall tax liability.

Bottom line

While missionaries dedicate their lives to serving others, tax compliance remains an unavoidable part of their financial reality. Whether receiving support from a sponsoring church or direct contributions from donors, knowing what’s taxable and what’s not can save you time and reduce your tax burden.

When in doubt, consider consulting a tax professional familiar with the unique tax situations of missionaries.

As the saying goes: “Give to Caesar what is Caesar’s.” And in the world of taxes, ensuring compliance with IRS rules is the best way to keep focus on the mission at hand – without any unwelcome surprises from Uncle Sam.