Our staff worked with our CPA and tax attorneys this year to bring World Wide into compliance with IRS and Employment laws. Our Executive Board directed us to implement new procedures by January 1, 2019. We have been in contact with all individuals who are currently affected. This section summarizes major changes that will take effect on January 1. Please make note of the following procedures and contact our office if you have questions.
New Pay Dates for Non-Resident Aliens (Non-US Citizens)
One area of compliance is the need to withhold 30% in taxes on US source income paid to Non-Resident Alien missionaries (NRAs). To accommodate the changes, all NRAs will receive a transfer on December 21, 2018, of all funds currently available. No taxes will be withheld on those funds. Any funds received after December 21 will be held until the January pay date, and the 30% in tax withholding will apply.
Starting in January, we can only distribute funds to NRAs one time per month. The payday for all NRAs will be the 25th of each month. If the 25th falls on a weekend, we will send funds on the Friday before. If we have been unable to close the books by the time we send funds, any funds received or processed after the transfer will be added to the next month’s payroll. For instance, if the 25th falls on a Sunday, we will send funds on Friday the 23rd. However, we may still internally process funds and close out books on Monday the 26th. In this instance, any funds processed after we have sent funds on the 23rd would be sent the 25th of the following month.
NRAs who have completed the process with our CPA to have their ministry recognized as a foreign non-profit organization (FNPO) will have the option for us to send transfers to their ministry bank account. Transfers made to recognized FNPOs will not be subject to the 30% withholding.
Payments or Gifts to Individuals
WWNTBM recognizes that part of the ministry the Lord has called you to may include assisting individuals on the field, whether by giving charitable assistance to those in need or by paying a salary to a secretary or assistant pastor. Unfortunately, these situations can create employment and tax issues both in the US and on the field.
When missionaries pay any form of compensation to an individual in exchange for services rendered for their business (ministry), WWNTBM becomes the de facto employer of the individual. WWNTBM is then liable for employment laws and for issuing tax documents to the recipient. Because the funds for such compensation come from US sources, this includes the requirement for WWNTBM to withhold 30% in taxes for all compensation paid to non-resident aliens (non-US citizens.)
By paying compensation to an individual, the missionary may also be entering into an employer/employee relationship according to local laws, and could, therefore, be personally liable for any local employment laws.
Business (ministry) gifts to individuals, whether given as cash or actual items, are limited by the IRS to a total deductible value of $25 per individual per year. Anything above that limit creates a tax situation when you try to claim it as a business expense.
Although as Christians we are commanded to help those in need, not all such assistance meets IRS standards for being tax deductible. For instance, individuals cannot receive a tax benefit for a benevolent or charitable donation made directly to another individual.
World Wide worked with our CPA and tax attorneys to establish guidelines which are beneficial to our missionaries, allowing them to carry out their ministry and remain in compliance with IRS intent. When making payments or donations to individuals, please keep the following principles in mind.
Compensation for services rendered
- Any time you are paying an individual in return for something they do, you are compensating them. This includes circumstances we would typically think of as employment (i.e., a secretary, janitor, or landscaper.) It also includes situations where the recipient is required to earn a ‘donation,’ such as when the missionary agrees to pay a set amount on their school bill for every hour they spend volunteering in the ministry.
- The best case scenario for the missionary to pay individuals is to first have their ministry established as a local non-profit. Once that is in place, we can work with our CPA to have the non-profit ministry recognized in the US as a foreign charity. (This process takes several weeks and currently costs $350-$400.) Once the paperwork is in place, WWNTBM can transfer some of the missionary’s funds directly to their foreign charity. The foreign charity then takes the responsibility of paying the individual according to local tax and employment laws. This option gives the missionary the tax deduction while relieving them of any personal liability. It also ensures that WWNTBM does not have to withhold 30% in US taxes for any local employees.
- WWNTBM will no longer receive funds designated for individuals who are not missionaries with WWNTBM, including funds designated as “national support.” All funds received by WWNTBM should only contain the name of the missionary.
- Missionaries may not list salaries (i.e., any compensation for services rendered) as reimbursable expenses on their MFRs, except those for individuals who have been previously approved by our Executive Board, (e.g., their spouse or children.) Because of tax withholding issues for non-resident aliens, the Executive Board has voted not to allow missionaries to claim a deduction for salaries paid to non-resident aliens. We recommend that missionaries legally establish their local ministry and obtain US foreign charity status before beginning or continuing to pay compensation to local individuals.
- Please note: Personal compensation for non-ministry related tasks is between the missionary and the recipient. For instance, if you pay a for a housekeeper, babysitter, or landscaper at your home, those expenses have nothing to do with your MFR or the 30% in tax withholding by WWNTBM. However, when you pay others for work, and thereby sub-contract with another individual to further the ministry for which you receive US funds, that is when these rules apply.
- One fundamental way for the missionary to avoid possible tax issues is to ensure that any donations or payments made to individuals are not given with the expectation of something in return. (e.g., Our ministry will assist with your child’s education because we help those with low income; but we do not expect you to lead singing or teach Sunday School as a prerequisite.)
- All expenses listed on MFRs should be ordinary and necessary expenses to develop the long-term stability of the ministry within the local culture.
- Donations to individuals in the church or general population are allowable expenses so long as they are for the promotion, public relation, or development of goodwill between the ministry and the local people, or the humanitarian needs of the community.
- Donations to individuals apart from regular ongoing activities of the ministry as a whole are probably not deductible. For instance, seeing that your neighbor or coworker needs new tires and giving them money to meet that need is an expression of Christian love. But, if it is not the ministry of the church to provide vehicle repairs to the community as a whole, this is just a personal gift to a friend and is not tax deductible to the missionary.
Foreign Non-Profit Organization Status
In the past, transfers from World Wide to an overseas non-profit ministry account created an automatic deduction for the missionary. We recently learned rules exist which govern this deduction. To continue receiving this deduction, we need to go through a process with our CPA to legally establish that the foreign non-profit organization (FNPO) meets IRS guidelines. This process takes several weeks and involves gathering documentation for our CPA. The CPA’s review and certification cost $350 to $400. Upon completion, a Memorandum of Understanding needs to be signed by officers of the FNPO, agreeing to handle all funds received by World Wide and to comply with local tax laws.
Benefits of this registration include:
- Ability to hold ministry funds at World Wide until needed, without claiming the income
- Tax deductions for the missionary when personal funds are sent directly to the FNPO bank
- Ability to pay local individuals through the FNPO, without 30% withholding on US source income
- Protection for WWNTBM and for the missionary from both US and local employment laws (The FNPO becomes the employer.)
If you have an FNPO and have not yet started the process of obtaining this recognition with our CPA, we recommend beginning this as soon as possible. Please contact Laura or Naomi with any questions you may have.
Contributions to the Missions Agency
Part of our internal review has revealed inconsistencies in the way we manage the 5% contributions to help offset the expenses of the missions office. To clarify our policies, we want missionaries to be aware of the following guidelines. The 5% contribution applies in these situations:
- A donor indicates new support, even if it is the first time we have received funds.
- Funds begin coming from a donor on a regular basis, even if the check memo continues to say ‘gift,’ unless it is specifically designated such as ‘gift for building fund’ or some other specific project. Regular basis does not necessarily mean monthly; some donors give at varying times and some even give annually.
- All regular funds received are subject to the 5% contribution, regardless of whether they are received in personal or ministry support accounts (i.e. accounts for ongoing operations of a ministry such as a School or Radio Station.)
- Funds for specific projects will be evaluated on an annual basis to determine if they have become ongoing ministry support as opposed to one-time fundraising events.
Missionaries with World Wide have a unique tax status in that they are self-employed, but have received a W-2 as if they were an employee. In the past, this designation offered some unique benefits. However, based on much research, our CPA has recommended that we begin issuing 1099s as of the 2019 tax year. Please note the following:
- The main change is the tax form you will receive from us starting in January 2020, for the 2019 tax year.
- Your tax status does not change; you are still considered to be self-employed.
- Missionaries will still receive a W-2 in January 2019, for the 2018 tax year.
- Ordained ministers or those whose license or commission meet IRS guidelines will still be able to receive the benefit of a housing allowance.
- Missionaries will still be able to submit their ministry expenses on monthly financial reports.
- There may be changes in the form(s) your tax preparer submits when filing your personal taxes.
- Those who have 403(b) retirement plans will need to make some changes in how these are structured. Our staff will be able to assist with this transition.