Employee Benevolence - If Our Church Gives a Gift to One of Our Employees Is It Taxable?

If your church gives a benevolent gift to one of its employees is it taxable? Consider this example: Sarah is a part-time secretary at her church. Earlier in the year, her husband Ben was laid off from his job of fifteen years and shortly after had to undergo emergency heart surgery. A few months after the surgery, Sarah and Ben started receiving calls from the hospital requesting payment for their overdue medical bills. They couldn’t afford the out-of-pocket expense because of Ben’s unemployment and were really in need of help, so Sarah asked if the church could cover the payments. The church was aware the couple was also struggling to pay for housing and food and wanted to help, so the business administrator sent a check to the hospital. In this scenario, the church gave a benevolent gift to their employee. Benevolence is the act of providing resources to an individual to help meet a need the individual currently has no way of meeting. In addition to the individual’s level of need, the type of need, which is usually associated with healthcare, housing, food, clothing, or transportation expenses, is another qualifying factor for a gift to be considered benevolence by the IRS.

Tax Considerations

Benevolent gifts given by the church to a staff member are taxable as required by the Internal Revenue Service. It doesn’t matter if the church pays the service provider directly or gives the funds to the employee to make the bill payment. At year end, the employee must report the dollar amount, which should be included by the church on their W-2, as taxable income.

Documentation is Key

When forming a benevolence program for employees or individuals, it’s important to document the criteria you will use to determine need on an individual basis. Consider developing a written policy and maintaining documentation by following these steps in case you need to provide more information to the IRS.

1. Define your benevolence program. (What’s your purpose in providing help for employees or other individuals in need?)
2. Outline objective criteria you will use to determine need; such as unemployment or the passing of a family member that contributed to the household income. Consider following the guideline that “need” should be in relation to healthcare, housing, food, clothing, or transportation.
3. Require an application from all individuals who request a benevolent gift.
4. File a copy of the individual’s driver’s license with the application.
5. Always confirm the need and the person’s current lack of resources. Retain copies of invoices reflecting unpaid dues and contact the service provider.
6. Instead of paying cash to the recipient, make all payments out of the church’s general or benevolence fund so you have a record of the transactions.

It is important to remember that documenting your church’s benevolence program does not alleviate the need for proper taxation and reporting of any benevolence paid to a church staff member.

Church Employees with Significant Authority

Always avoid giving a benevolent gift to a staff member with significant authority in the church such as a senior pastor or business administrator. The IRS may impose additional penalties for gifts, benevolent or not, dispersed to employees who have a say in where the church’s money goes.

The information in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.