Typically, an honorarium is a one-time payment that you may receive for providing voluntary services for an organization that has not employed you. The organizer of the event is traditionally or legally not required to pay you but may choose to do so as a way of appreciating you for your work. And often, this kind of payment is given to ministers, academic lecturers, musicians and guest speakers.
But what happens when you attend an event and the hosts give you an honorarium, even though you did not expect to be paid for your services? Do you have to pay taxes on an honorarium? And if so, do you know where to report honorarium on your taxes?
Read More: Form 1040: What's Changed for Your 2020 Tax Return
Are Honorariums Taxable?
An honorarium is taxable depending on the current federal and state tax laws. The IRS considers it employment income and thus, expects its fair share from you even if it is given to you voluntarily.
How Organizations Report Honorariums
If an organization pays out this kind of money, it has to report it to the IRS via Form 1099 for honorariums that exceed $600 in any calendar year and issue you a copy of Form 1099-MISC. You may need to provide a taxpayer identification number (TIN) during the process.
However, even if you don’t receive a copy of the form, you must still report your honoraria when filing taxes.
How You Should Report Honorariums
And if you regularly receive the voluntary token of appreciation, you must report it to the IRS, too, especially if it is $600 or more. But you will also need to do so via Form 1040 Schedule C if you receive these kinds of tokens of appreciation. However, you can report them on the same form as "Other Income" if they are not a regular part of your income.
Because the IRS considers honoraria as taxable income, you may need to pay self-employment taxes on that money in some instances. In addition, you should think about the tax implications that await you if you travel across state lines often and receive honorariums as part of your earnings. In such cases, your income may be subject to multiple state taxes.
However, when the token of appreciation is considered taxable income, it is also subject to deductions. So, you can deduct your expenses to reduce your liability when filing taxes. These may include the cost of your unreimbursed plane ticket, printing materials and lodging, among other things.
Read More: Form 1040: What You Need to Know
Honorarium Exceptions to Know
It is worth noting that you will likely receive your entire honorarium if you are a resident alien or U.S. citizen. But if you are a non-resident alien, taxation honorarium rules dictate that 30 percent of the amount is withheld for taxes.
But not all foreigners qualify for honorariums. Those that do must adhere to the set 9/5/6 rule. That means their services for a single institution should not exceed nine days, and they should not have received honoraria from more than five institutions within the past six-month period.
However, if a tax treaty governs such earnings, the honorarium withholding tax rate may be reduced or eliminated. It all depends on the existing agreement.
In addition, if you are a minister who performs services such as baptism and weddings, your honoraria are exempt from taxation. In that case, the IRS usually considers them as gifts.
Also, if you meet the foreign earned income exclusion eligibility criteria, you may not have to pay taxes on any honoraria your hosts pay you in a foreign country. So, it’s worth exploring that option, too, if you want to reduce your tax liability.
It’s safe to say that unless you are a minister who obtains gifts for services you as you work, the chances are high that you will need to pay taxes on any honorarium you receive. So, it helps to find ways of reducing your liability when filing taxes if you don’t qualify for any exclusion.
I hold a BS in Computer Science and have been a freelance writer since 2011. When I am not writing, I enjoy reading, watching cooking and lifestyle shows, and fantasizing about world travels.