We have been supporting a pastor in South Sudan for many years. However, we have not been able to send him support for some time, due to the lack of a qualified organization (he's currently displaced in Juba and serving other displaced people). He will be in the US for a conference at the end of this month. If we give him an honorarium for speaking at our church, are there any restrictions on the amount we can give or on his eligibility to take the money back to South Sudan? There is nothing in place to track how he uses the money once he returns to the country he’s serving.
The answer depends on the visa the pastor received to visit the US. If he has a tourist visa, he may not receive any compensation from you. If he received a US visa that allows him to earn an honorarium while in the US, you may pay him a reasonable honorarium, like you would pay any other guest minister speaking at your church.
Payments to nonresident aliens are first classified according to where the services are being rendered. If the payment is for services in the US, the tax implications ensue. If the nonresident alien is in the US for less than 90 days within a calendar year (“personal presence test”) and the church’s payment is less than $3,000 for the entire calendar year (“income test”), then no US tax rules are implicated. If the nonresident alien is from Mexico or Canada, the nonresident alien must be in the US less than 183 days during a calendar year. If either the personal presence test or the income test is not complied with, then the church must comply with the tax rules.
Assuming the personal presence test or the income test is not met, the church must withhold thirty percent (30%) of the payment, unless a treaty changes the rate. Some nonresident aliens qualify for exemption from mandatory withholding. To receive the exemption, the nonresident alien must give the church IRS Form 8233. The church must send the IRS the Form 8233 at least 10 days before any payments are made. Since Form 8233 requires a taxpayer identification number, the nonresident alien may submit Form W-7, the Application for Taxpayer Identification Number, with Form 8233. Without Form 8233, the thirty percent (30%) withholding is mandatory.
If the personal presence test or the income test is not met and Form 8233 is not filed in a timely manner, the thirty percent (30%) withholding will apply unless a treaty sets a lower rate. To determine whether a lower rate applies, the nonresident alien must fill out Form W-8ECI and give it to the church.
If any withholding applies, the church should issue Form 1042-S to the nonresident alien and file the original with the IRS along with the amount withheld.
Frank Sommerville is a shareholder in the law firm of Weycer, Kaplan, Pulaski & Zuber, P.C. in Houston and Dallas, Texas. He is a CPA and an Editorial Advisor for ChurchLawAndTax.com.
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