Gifts Can Be Taxing
As we move through the holiday season and approach year-end, it is common for churches and congregants to recognize pastors and staff with a love offering or some other type of gift. The gift could be a small amount of cash in a Christmas card or an organized collection taken during the worship service. It is important to consider the tax implications of these kind gestures for both the recipient and the giver. Depending on the process used to collect and distribute the funds, these gifts may need to be reported to the Internal Revenue Service (IRS) as a part of the recipient’s income.
Classifying gifts to ministry workers as taxable or non-taxable income can be difficult. In general, the more the church helps to organize the gift, and the bigger the gift, the more likely it is to be taxable. Here are a few examples:
• A donor gives a gift card, cash, or personal check to the ministry worker. If the gift comes directly from an individual donor and is of small value—such as a gift card or cash in a Christmas card— it is generally nontaxable to the ministry worker.
• The ministry writes a check from its general fund. If the gift comes from the church’s general fund, it is probably taxable for the worker. One example is a Christmas bonus. The ministry likely should identify the gift as part of the worker’s taxable compensation and withhold appropriate taxes.
• The ministry distributes member contributions through its accounts. A gift that is funded by member contributions, but flows through church accounts, is probably taxable. The ministry may need to identify the gift as part of the worker’s taxable compensation and withhold appropriate taxes.
There are tax implications to consider from the giver’s perspective as well. The church must research and know the difference between a tax-deductible gift to an organization and a non-deductible contribution to an individual in order to properly issue contribution receipts and annual statements.
Contributions earmarked for a certain individual are most likely not tax deductible. However, if an individual gives a contribution to the church and the church has full control of the donated funds to ensure they will be used to carry out its purpose, the contribution would be deductible. This is the same for a love offering. If the offering is designated for a specific individual, the donations are not tax deductible. If the church decides to give the pastor a love offering from the church’s funds the contributions given directly to the church for the church’s discretion on where the funds go are tax deductible.