An Honorarium is a payment given to someone in exchange for voluntary service. For an Honorarium, the giver is not legally bound to pay a set amount. Also known as “ex-gratia payment,” it is considered a gesture of respect or a way of thanking people for offering their voluntary services.
It originates from the Latin word “honorary,” which means “gift.” As a mode of payment, an Honorarium differs from a contractual agreement. Therefore, the Payments offered to guest speakers cover accommodation, preparation time, and travel costs are Honorariums.
- An honorarium is what an institution offers people as a token of thanks for their voluntary services in the form of a small amount or gift.
- This mode of payment is offered for Guest Lectures, Christian Church Funerals, and Memorial services.
- The IRS considers such payment as self-employment income. Therefore, the amount is 100% taxable. Only ministers are exempt from taxation when paid for speeches, baptism, and weddings.
- Expenses like travel, business accessories, and tools are tax-deductible.
- The amount paid for voluntary services rendered depends on the time and effort.
How does an Honorarium Work?
An Honorarium is a way of “honoring” a volunteer’s time, effort, and work. Usually, people receive remuneration for their work. In stark contrast, an honorarium is offered to people who work without expecting any monetary profit.
It is important to note that determining this amount takes into account the effort and expenses. Expenses include lodging, meals, and traveling.
For example, if a guest lecturer comes from another city to deliver a speech in a college, it roughly amounts to three days of work. This includes time for preparation and travel.
For non-resident individuals in the United States, immigration status is a must to provide a service which warrants any payment. The following conditions must be met to qualify for an honorarium in the US.
- Should perform for not over nine days at a time.
- Should be involved in basic academic routine, like sharing hindsight, teaching, or lecturing.
- Should carry out voluntary services for Government and non-profit research institutions/ higher education.
- Should perform in not over five organizations every six months.
Time is money; payments offered for voluntary services depend mainly on time spent by the volunteer.
Consider the following example of voluntary service. Ralph delivers a guest lecture in a college as a subject expert for 2 hours. At the end of the ceremony, he receives a gift from the Chancellor.
The gift offered in the example is what is called an honorarium. It is a token of thanks that acknowledges Ralph for taking out some time from his daily routine and sharing his knowledge.
The mode of payment received by panelists reviewing research proposals for competitive grants programs is another example. Sports club volunteers, teachers, coaches to and even wedding officiants receive this mode payment. Musicians or ministers who serve at memorials Christian Church funerals also accept such payments. However, officially such volunteers do not charge anything from the grieving family.
It is essential to note an exception. Members of the US Congress cannot legally accept any payment for articles or speeches.
Are Honorarium Payments Taxable?
Honorariums are taxable, just like any other form of income. The taxation clauses for paying voluntary services are as follows.
- When a US resident receives an honorarium for voluntary services, be it conducted within or outside the borders of the US, that payment is subject to federal, and at times, state income tax.
- Any payment towards a voluntary service surpassing $600 has to be reported to the IRS (Internal Revenue Service). Volunteers have to report self-employment income for tax returns and other incurred charges under Schedule C of the IRS Form 1040.
- If the nature of the voluntary service differs from self-employment, then the received payment is reported as other income. This option is found on line 21 of form 1040.
- Volunteers can write offWrite OffWrite off is the reduction in the value of the assets that were present in the books of accounts of the company on a particular period of time and are recorded as the accounting expense against the payment not received or the losses on the assets. incurred charges for justifying their income. ExpensesExpensesAn expense is a cost incurred in completing any transaction by an organization, leading to either revenue generation creation of the asset, change in liability, or raising capital. like travel, business accessories, and tools are deductible.
- Guest lectures or voluntary services rendered across state borders are liable to additional taxation.
- Speakers delivering guest lectures across state borders often pay taxes to multiple states. This is because many states consider a speech as a voluntary service provided under a “nexus within their borders.”
- The IRS exempts ministers from taxation for payments received from baptism, speeches, and weddings. The IRS considers these payments a gift and not taxable compensation.
Consider this example. A motivational Speaker visits an NGO & earns a $4,000 payment. The speaker spends $1200 for the speech, $700 on a Vlog for advertising, and $400 on the props. That entirety of $2300 spent by the speaker is deductible. Only the remaining $1700 would be taxable.
Frequently Ask Questions (FAQs)
A stipend is a fixed small payment, referred to as a modest allowance, that occurs at frequent intervals. On the other hand, an honorarium is regarded as royalty; it is not fixed and might not be paid at regular intervals.
An honorarium comes under taxable income under IRS regulations and therefore cannot be transferred to another individual or organization.
Ministers receive a payment of $150-$300 at a funeral in lieu of performing the service and time spent with the grieving family.
This has been a guide to Honorarium, its Meaning, and Examples. Here we discuss if this mode of payment is taxable and how it works. You may learn more about financing from the following articles –