Author: WWNTBM

Tax season is once again upon us! Here are several reminders concerning tax issues that you may face. We trust that this information will be useful to you, both in giving you a better understanding of your reports and helping you to be aware of items that may affect your personal taxes.

Tax Paperwork for 2018

Tax-related paperwork generated by WWNTBM is in your SecureCloud folder. This includes W-2 forms, MFR Summary Reports, and Estimated Tax letters. Please be sure to look at the 2nd page of the MFR Summary, to see if there are any specific notes for you and your tax preparer. If you requested that we submit your tax information directly to your tax preparer, please note that those documents will be sent in mid-February. This is to ensure that there is time for us to include any forms that may arrive in our office from other sources. If you have any questions, please contact Naomi.

1099 Forms

If churches issued funds payable to you in excess of $600 during the year 2018, they may issue you a 1099 form. If those funds were either mailed to the office or included on Line 2 of your MFR as extra income, they are already included in the total of your W-2. Our office can assist you in verifying whether the funds were included on your W-2. Your tax preparer can assist you on your return in recording this so that you are not taxed twice on the same income. We recommend that you request churches to make checks payable to WWNTBM to avoid this issue in the future.

Foreign Tax Exclusion

In order to claim the foreign tax exclusion, you must be out of the US for 330 days over a 12 month period of time; however, these days do not have to be in the same calendar year. In order to gain the full benefit of the foreign tax exclusion, your tax preparer may be able to revise your returns based on the actual time you have spent overseas. Because of this, it is vital to provide your tax preparer with all of your travel dates to and from the US. You may also wish to discuss with your tax preparer what dates would be the best travel dates when planning to leave for the field or return on furlough, as this could affect how much you are allowed to claim under the foreign tax exclusion.

It is our understanding that, while the Foreign Tax Exclusion does benefit many of our missionaries, it may not always be the best solution, as there are other situations which may give a greater benefit. Some of those options may affect taxes not only for this year but for future years as well. This is another reason we recommend consulting a tax professional who can advise you in relation to your unique circumstance.

Healthcare and your taxes

Our financial report gives a location for you to track ‘heath insurance costs.’ However, each individual situation is different. Some use this area to record traditional health insurance, some use it to record expenses through the Marketplace, and others use it to record details for a health care sharing ministry such as Samaritan Ministries. While all of these are health-related costs, each of the examples affects your taxes in a different way. Please be sure that your tax preparer is aware of the details of your health coverage, as it may affect how they complete your tax return.

Estimated Tax Payments

Missionaries are considered to be self-employed and are therefore subject to self-employment taxes. Submitting quarterly estimated tax payments throughout the year will help to prevent having a large tax payment due each April. Estimated tax payments can be submitted on your own, or, if you are interested, you may contact our office for information on how we can submit them for you.

Tax Paperwork for those with Foreign Bank Accounts

US Treasury Dept. regulations require that if you have any foreign bank accounts, and if the sum total of all of your foreign accounts has ever been $10,000 at any given time during the past year, you must complete the IRS Foreign Bank and Financial Account Form (FBAR) and give it to your tax preparer. This includes all foreign accounts on which you are a signatory, such as a ministry account. This form, and further information about it is available on the IRS website at www.irs.gov. Please refer to the IRS website and your tax preparer if you have any questions.

Utilizing a Tax Professional

Studies have shown that the average person who uses a tax professional, instead of filing their own taxes, receives a much greater tax return. The savings far exceed the amount spent to hire a professional. Many have also found that using tax software does not always compare to the benefits of using a professional, either. In many instances, it is not that the software or the self-filer is wrong, but that other choices may be better. (Information is taken from daveramsey.com.)

It is also good to note that not all professionals are familiar with tax situations that might affect you. We encourage all missionaries to use a certified tax preparer who is familiar with special tax situations that affect missionaries and those living overseas. A listing of tax preparers used by other missionaries is available on SecureCloud, under the Forms and Manuals section.

In December we notified you of several new procedures to begin January 1, 2019. (Click here to read those details.) As we continued working with our CPA and tax attorneys throughout December, we were able to find solutions to alleviate some of the changes. Please review the following information and contact our office if you have questions.

Update for Non-Resident Aliens (Non-US Citizens)

We have learned the requirement to withhold 30% in taxes on US source income paid to Non-Resident Alien missionaries (NRAs) only applies when the individual is present in the United States. Therefore, no withholding will be taken while missionaries are overseas. Because of this change, there is no longer a need to have a single pay date each month for all NRAs. Missionaries will continue to receive funds on their regular schedule.

Our CPA still encourages NRAs to have their ministry recognized as a foreign non-profit organization (FNPO), as this will provide greater protection to World Wide and to the individual missionary.

We request that all NRAs notify the Office in advance of any travel to the United States so that we can be prepared to comply with IRS regulations. In addition, there are visa stipulations for those conducting ministry while in the US. Travel to the US under the wrong visa status could impact others within the World Wide family, as Homeland Security looks to us to ensure those associated with us are in the US legally. Thank you for helping us with this so we can remain in compliance!

Update on Payments 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. We have learned the requirement to withhold 30% in taxes for compensation paid to non-resident aliens (non-US citizens) only applies if they are in the US. However, due to the other difficulties created with compensating NRAs, 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.)

Please click here to review information on Payments to Individuals and the changes that will apply as of January 1, 2019.

Foreign Non-Profit Organization Status

Thank you to those who have begun the process to register your ministry as a Foreign Non-Profit Organization (FNPO.) We realize this takes a lot of time to gather the necessary documents. 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.

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.

Non-Compensatory Payments

• 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.

Tax Documentation

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.