Love Gift to Pastor - not related to services performed - reportable?

by Linda
(Seattle area)

If a pastor is experiencing high medical costs not covered by insurance and the Board wants to provide them a small love gift (< $3,000) to show support for their struggle, is this reportable/taxable on a W-2?

This gift is not in any way a condition of employment, nor has it been asked for by the pastor.

It is a spontaneous gift.

Everything I've read indicates this is taxable, just checking to see if there is any rationale for it not being taxable.

Comments for Love Gift to Pastor - not related to services performed - reportable?

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Oct 04, 2023

Taxable Love Offerings
by: Vickey

Yes. It will be considered taxable income by the IRS.

You cannot consider it nontaxable "benevolence" because of his position in the church.

See this article on my site about that: https://www.freechurchaccounting.com/benevolence-fund.html

Pastors, employees, and board members and their direct family members cannot receive benevolence from your church. The reason they are ineligible to receive any financial benefits from your church is spelled out in Treasury Regulation 53.4958-39(b). The IRS considers them disqualified persons due to their position of substantial influence in your tax-exempt organization.

So I would "title" the gift carefully and make sure it is included on box 1 of his W-2.

Giving financial assistance to any "disqualified person" can be considered private inurement or excessive benefit transaction. Section 4958 of the Internal Revenue Code details the laws regarding the hefty penalty taxes that can occur when the IRS considers a tax-exempt organization to have committed one of the above mentioned transactions.

The same rule applies on benevolence payments made directly to those employees or even those paid on behalf of the employee, such as a doctor bill.

Benevolence to family members of employees can also be considered income to that employee also. Read Internal Revenue Code Section 102.

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If you want to DIY your payroll, I highly recommend you look at using Gusto! It is very user friendly and their support is awesome! Plus they know how to set up and maintain payrolls for churches and nonprofit organizations.

Note: I am a "partner" of Gusto, but as I have told you before ... I never recommend anything that we or our clients have not tried and love =)

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