Cash Gifts to Ministry Staff Could Be Wrapped Up in Reporting Requirements
Occasional gifts to ministers or other ministry employees are not always tax-free. Depending on the process used to collect and distribute the funds, these gifts may need to be reported to the IRS as part of the recipient’s taxable income.
Is the gift taxable?
Generally, the extent of the ministry’s involvement in the gift determines whether the gift is taxable.
The church is not involved. A gift card, personal check, or prepaid debit card given directly by a ministry participant to a minister or employee is generally considered non-taxable to the recipient. However:
- The intent of the giver and the amount of the gift is important. Amounts given for services, such as a wedding, may be considered taxable compensation.
- The gift likely cannot be reported as a tax deduction by the giver, regardless of taxability to the staff member.
The church is involved. A gift collection taken and distributed by the ministry may be taxable to the minister or employee. Keep in mind:
- Even love offerings and minister or employee gifts for birthdays, retirement, and anniversary are taxable if given using this method.
- Taxable income to the minister or employee must be included in Box 1 of the W-2 and Form 1040 of the staff member who received it.
- The employee and the ministry could be held liable in an audit for incorrectly reporting taxable income.
Benevolent gifts to employees
Benevolent gifts given by the ministry to a staff member are taxable. It doesn’t matter if the ministry gives the funds to the employee to make a bill payment or if the ministry directly pays a bill. The dollar amount should be included on the employee’s W-2 as taxable income.
Be aware that any gifts to employees should follow the ministry’s public benevolence policies. Employees in a leadership position have additional requirements. Such gifts should be reasonable and approved in writing by ministry leadership. Done incorrectly, benevolence giving can result in substantial tax penalties to the employee and the loss of the ministry’s tax exemption. Talk to a locally licensed attorney or tax professional to ensure that you follow all appropriate procedures.
If you’d like to read the four other tips in this series, download Payroll and the Church: 5 Things That Ministries Get Wrong from MinistryWorks.
The information provided in this document 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. Please consult your attorney when creating, reviewing, or revising policies and procedures.