An honorarium is a monetary payment for services rendered voluntarily. It is typically processed before an event’s start or close to it. An honorarium payment is considered income; hence, it is subject to income tax.
An honorarium may be applicable in many situations, including as a token of payment to a guest speaker, participant incentives to remain in research studies, or recognition of an achievement, such as in dissertation research. For example, a minister who officiates a wedding ceremony is usually given an honorarium equivalent to their services.
An honorarium is a gratuitous fee given to an individual with professional and scholarly standing for leading a voluntary workshop or an event or for rendering any other professional service.
Since it is considered a form of self-employment income, an honorarium is subject to taxation, according to the state and federal laws.
Form 1040 is used to report an honorarium for income tax and is reported as self-employment income by the IRS and taxed accordingly.
How an Honorarium Works
An honorarium is often a token of payment made in consideration for service offered in a volunteer capacity. It is a common remuneration practice in sports clubs, churches, and school institutions.
Expenses incurred for traveling, lodging, meals, and other related services also amount to an honorarium. For example, panelists who review research proposals for a competitive grants program may be given honoraria for the services offered and to cover their traveling, accommodation, and preparation time.
An honorarium is predicated on the amount of service used in creating and delivering a service. For example, a minister for a congregation may need several days to prepare – time for making, practicing, and polishing the speech, another day for traveling and delivering the speech, and another for resuming his or her usual routine. The amount of time in preparing for the main event justifies an honorarium.
Reporting Honorarium to the Internal Revenue Service (IRS)
An honorarium earned by an individual should be reported as an additional income. It is required even if the actual payment for voluntary service is done through another party, such as a school or a charity foundation. Organizations ensure that honoraria are taxed as per their policies and applicable state and federal regulations governing such service payments.
If such an incentive is $600 or more in one year, honorary rewards for voluntary services are reported to the speaker and the Internal Revenue Service (IRS) using Form 1099-MISC. The speaker must report the honorarium as income, even if he does not receive the form.
However, the rule comes with rare exceptions. For example, the IRS exempts ministers from paying honorarium taxes for rendering certain services, such as speeches, baptism, weddings, speeches, and other activities. In such scenarios, honoraria are treated as gifts rather than taxable compensation.
Treatment of an Honorarium as Employment Income
An honorarium is considered employment income for income tax purposes and is therefore subject to deductions. An honorarium, alongside other related expenses, is reported as taxable income using Form 1040 of IRS Schedule C. Related expenses may, for example, range from an air ticket to the printing of speech materials, or from using a cellphone for business to maintaining a website for which the speaker may deduct the cost.
An honorarium is reported as other income on Line 21 of Form 1040 if it does not amount to a speaker’s regular business. On other occasions, such a type of payment may be subject to self-employment income tax.
Speakers earning honoraria by traveling to other states are required to create additional taxation. It is explained by the fact that different states claim taxes against speakers’ income since they consider rendered voluntary services – such as a speech – as a nexus within their borders.
It means that a speaker may bear the brunt of multiple state tax returns. In the case of a voluntary service provided overseas on foreign soil, the honorarium is paid through accounts payable and is not reported to the IRS or subjected to taxation.
How to Award an Honorarium to a Foreign Individual
Below are several steps that must be following when rewarding an individual for services offered. The non-resident individual must first be in the United States under an immigration status that permits him or her to offer a service that warrants a payment. For such individuals to qualify for an honorarium, they must engage in the following activities:
Engage in the usual academic activities, including lecturing, teaching, or sharing knowledge
Perform for a period of not more than nine days at a time
Perform in not more than five organizations per half a year
Perform for non-profit and government research institutions or higher education
Additionally, foreigners are required to produce the following documentation before issuing honorarium payment:
Foreign national information form
A copy of the 1-94 Departure Card, which shows immigration status
A copy of the identification page of the passport
Form 8233 of form W8BEN to be used for treaty benefits
Under IRS regulations, the beneficiary of an honorarium may not transfer the payment to another individual or organization unless the money is received first and donated. Under some circumstances, foreign ministers may not be eligible for transportation reimbursements based on immigration regulations.
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