How to Pay Missionaries

What is a Nonprofit?

According the the U.S. Chamber of Commerce, a nonprofit “has a legally approved purpose or social cause beyond profit generation. The organization’s income is not dispersed to any shareholders but instead is invested back into the organization.” Nonprofit charities are considered tax-exempt through their IRS 501(c)(3) status. Additionally, donations made by individuals or businesses to nonprofit organizations can be deducted from their taxable income.

What is a Missionary?

Dictionary.com defines a missionary as:

1. a person sent by a church into an area to carry on evangelism or other activities, as educational or hospital work, or
2. a person strongly in favor of a program, set of principles, etc., who attempts to persuade or convert others.

Missionaries are most commonly associated with religious organizations and churches. Religious organizations are, by default, categorized by the IRS as 501(c)(3) tax-exempt organizatons. Paying missionaries as a 501(c)(3) nonprofit requires careful compliance with IRS regulations.

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Listed below are the 5 main ways to compensate missionaries while maintaining tax-exempt status:

1. As Employees (W-2)

• If the missionary is under the nonprofit’s direct control (e.g., assigned work, schedule, and oversight), they should be treated as an employee.
• The nonprofit must withhold income tax, Social Security, and Medicare unless they qualify for a ministerial exception.
• The missionary will receive a W-2 at the end of the year.

2. As Independent Contractors (1099)

• If the missionary has more control over their work and operates independently, they might qualify as an independent contractor.
• The nonprofit does not withhold taxes, but the missionary is responsible for self-employment taxes.
• The nonprofit issues a 1099-NEC if payments exceed $600 in a year.

3. As Grant Recipients

• If the missionary is serving under another organization or independently, they may receive a grant to support their work.
• The nonprofit must ensure the funds are used for charitable purposes (e.g., requiring reports or receipts).
• Grants are not taxable to the missionary if properly structured as support for their ministry.

4. Through a Missionary Support Program

• Some nonprofits operate a donor-advised support fund where donors contribute specifically for a missionary.
• Funds must be under the nonprofit’s control and not just a pass-through.
• The missionary is either paid a salary, stipend, or reimbursed for expenses.

5. Reimbursement for Expenses

• Missionaries can be reimbursed for actual ministry-related expenses under an accountable plan (must submit receipts and documentation).
• These reimbursements are not taxable income.

Summary

There are several ways to compensate missionaries through a nonprofit organization. It is important to consider the general function of a missionary, their day-to-day activities, and the level of oversight when determining which method to use.

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