Support for missionaries working in the field is critical to their success. How the support is provided can also be critical to determining a missionary’s work status as it relates to your ministry. All U.S. employers, including religious organizations, are required to assign a status to all paid workers. Generally, a worker is either classified as an employee or an independent contractor for tax purposes.
Ministries and mission-sending organizations often have difficulty deciding if a missionary is an employee or independent contractor. It's an important distinction, because an employee is eligible for certain employment rights and benefits, including Social Security. In addition, an employer is required to withhold taxes and pay one half of the Social Security obligation on behalf of the employee.
Independent contractors are required to participate in Social Security but must pay the full contribution themselves. They also must pay other payroll taxes, such as income taxes and Medicare.
An organization is not required to withhold or pay taxes on payments or offer benefits to independent contractors. However, an incorrect classification could leave your organization vulnerable to paying back taxes, large fines, and other penalties if the worker is later determined to be an employee.
The key to assessing a worker’s status is the relationship between the business and the worker. The more control an organization has over a missionary, the more likely the individual is an employee for tax purposes.
In order to determine if a worker is an employee or independent contractor, the Internal Revenue Service looks at many factors, including:
Behavioral — Does the organization direct and control what the worker does and how the worker does his or her job?
Financial — Does the organization direct and control how the worker is paid and expenses are reimbursed?
Type of relationship — Does the organization offer benefits typical of an employer-employee relationship (i.e., health insurance, vacation pay, and pension) or is the relationship defined by a single contract?
A few key questions about the organization’s relationship with a missionary worker may help to reach a proper classification. To look at the behavioral, financial, and type of relationship a church has with a missionary, start by asking:
Q: Does the individual work for a mission organization or does a church give financial support directly to the individual?
A: If the individual works for a mission organization, then the person is likely an employee of the mission organization and not the church. When a church donates funds directly to the organization instead of the individual, it allows the mission organization to direct the money and complete tax paperwork.
Q: Does the individual work on behalf of multiple ministries or mission organizations?
A: If so, the individual likely is an independent contractor and any church offering financial support to the missionary would issue a MISC-1099 Form.
Q: Does an organization control the day-to-day aspects of the individual’s work?
A: If a church or mission organization controls the funds the individual uses to work the mission, the length of the mission, and how the mission is accomplished, then the individual is likely an employee of the organization.
Typically, no single factor makes the determination, and relevant factors in one situation may not apply in another. Make sure you document all factors used in making this determination for workers in your ministry. The IRS also looks at the other tests outlined in its document, Independent Contractor or Employee.
Most missionaries have an employer-employee relationship with their organizations. Examples of an independent contractor could be a traveling musician or evangelist, fundraising coach, or a temporary counselor.
There are several ways to obtain help if your ministry is unsure of how to classify a missionary. For help understanding how the law applies in your situation, check the common-law rules in IRS Publication 15-A. If you need more specific advice, contact a locally licensed attorney familiar with international employment situations. An employment lawyer will know the applicable local laws and should be able to tell whether your ministry is in compliance.
Finally, if there is still confusion over a missionary’s tax status, you can take your case directly to the IRS by completing Form SS-8. The IRS will make a determination on the missionary’s status based on the facts you present on the form.
The IRS’s determination deals with tax status only. It does not apply to liability or workers’ compensation issues. Your ministry can limit its liability by requiring the independent contractor to indemnify the ministry for his or her own liability. The contractor also should provide a certificate of liability insurance, demonstrating what coverages apply to the independent contractor’s activities.
If your ministry determines it has misclassified a missionary, consider the Voluntary Classification Settlement Program (VCSP). VCSP is an optional program that provides eligible organizations the opportunity to reclassify workers as employees.
Some benefits of VCSP include:
Partial relief from federal employment taxes
Release from liability for interest and penalties on the tax amount due
To participate in this voluntary program, exempt organizations must meet certain eligibility requirements.
Classifying missionaries can be a complex task and should involve consultation with a locally licensed attorney or ministry tax professional well-versed in international employment law.
Finally, Legal Assist is a free service offered by Brotherhood Mutual. It offers guidance on complicated questions related to ministry activity, employment law, contract wording, and more.
Updated May 26, 2021
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