Christmas Love offerings to pastors can get taxed 200%

By Raul Rivera

Can a Christmas Love offering really be taxed 200%?

Last Christmas, when the church gave their pastors a Christmas love offering, they never thought it would bring them so much trouble.  It was a snowy night and the annual Christmas play was the best ever.  Excitedly, the congregation awaited the moment for which they had all been quietly planning during the past four weeks.  Each had given according to their ability, with the treasurer keeping a good accounting of what had come in to the church, and they were certain that their pastors would feel blessed.  And so, as the pastor closed the evening service that night, the treasurer took center stage and began to joyfully announce that the small, 72-member church had a Christmas gift for the pastoral couple.  After expressing how much they were loved, the treasurer presented him with a check in the amount of $2,500.00.  It was such a beautiful night, and as members exited the church doors to embark on their journeys home, all hugged their pastors warmly, wishing them a very merry Christmas.

An audit of the pastors' tax returns

This year, when the pastors' tax returns were audited, they explained to the IRS agent that the $2,500.00 deposit in their account was a gift from the church.  Taking note, the agent continued the audit and wrapped it up by making proposed changes to his tax liability of $5,000.00.  A $2,500.00 Christmas love offering last year became a $5,000.00 tax bill.  They, like many pastors, did not know that the IRS classifies any unreported love offerings given to pastors as excess benefit transactions and result in penalties as high as 200% of the offering. 

How to make this year's Christmas love offerings a blessing

When a church gives its pastors a love offering, it must show that the love offering combined with any other salaries or benefits is reasonable and it must report the love offering on a W-2 form so that the pastor can report it on his/her tax return. This procedure makes it compliant with IRS regulation and therefore, IRS proof. 

Now!  Is there a way to make the love offering tax-free?  Yes!  Read A Tale of Two Pastors to find out how!