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30 Nov 2017

Church Rewards Volunteer; IRS Says, Pay Up!

Raul Rivera

At the beginning of the year, Pastor Keith decided he wanted to try something new. In addition to the annual banquet to honor volunteers, Pastor Keith decided to provide a quarterly gift to those who serve at least twice a month during a church function. 

So far this year, 15 of the church volunteers have received a $25 gift card as a “Thank You!” for serving. Pastor Keith felt good about the gifts because he truly appreciated all that the individuals did for the church and for the Kingdom of God. 

However, his good feelings turned sour when he heard a pastor friend mention that gifts to volunteers (i.e. gas cards, gift cards, etc.) are considered taxable income. 

His pastor friend received this information while attending a church compliance conference

Pastor Keith was grateful for his friend’s honesty, but he wanted to find out more for himself. He decided to register for the same conference, and here is what he learned. 

Good intentions gone awry

If you have been a pastor or in church administration, then it is likely that Pastor Keith’s story resonates with you. 

Small gifts to volunteers are an expression of gratitude to bless those who faithfully serve in our churches and ministries. 

Such gifts may include gift cards, baskets, worship albums, and special retreats. These seemingly small acts of appreciation can quickly become complicated for tax purposes. 

Many pastors and churches do not realize that such gifts are governed by the IRS. 

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Rules on gifts from your church to volunteers

When honoring your staff and volunteers, there are 3 basic rules that will help you determine whether or not a gift is taxable or non-taxable. Remember, giving gifts is not wrong; however, improper treatment of those gifts is an issue.

Below is an explanation of the rules that govern gift giving.

Rule #1: All gifts of cash, gift certificates, or gift cards are always taxable.

Treasury regulations section 1.132-6(c) states that cash or cash equivalents are subject to federal income tax as well as Social Security tax. 

If the recipient is an employee of the church, the gift is considered apart from the employee’s wages, and the church is required to withhold federal income tax and FICA tax. However, if the recipient is a volunteer, he/she must independently pay the federal income tax and Social Security tax on the gift. 

Moreover, if the church gives cash or a cash equivalent of $600.00 or more to a volunteer, the church must issue that person a 1099-MISC. All cash or cash equivalent gifts must be reported to the IRS. 

Examples of “cash or cash equivalent” gifts are:

  1. Actual cash or check (no matter how small in amount).
  2. A gift card (no matter how small in amount).
  3. Redeemable gift certificate (of any kind).
  4. Money or a gift certificate given to purchase an item that is usually considered a tax-free gift. In Technical Advice Memorandum 200437030, the IRS ruled that an award of a $35 gift certificate, which could be redeemed at a grocery store to buy a ham or a turkey, was to be treated as taxable income because it had the equivalence of cash (see rule 3 below).

(Recommended reading: "Love Offerings Directly to Pastor Spell IRS Trouble")

Rule #2: Some tangible gifts must be reported as taxable fringe benefits.

Fringe benefits are additional benefits that employees receive for their services to an employer. Unless otherwise stated in the tax code, all fringe benefits to employees or volunteers are considered taxable. 

Examples of taxable fringe benefits include: 

  • Season tickets to sporting or theatrical events. The key is “season tickets”; occasional tickets are non-taxable (see rule 3).
  • The commuting use of an employer-provided automobile or other vehicle for more than one day per month (i.e. giving a church-owned car to a pastor for personal use). 
  • Membership in a private country club or athletic facility, regardless of the frequency in which the employee uses the facility. 
  • Employer-provided group-term life insurance for the spouse or child of an employee. 
  • Use of employer-owned or leased facilities (i.e. an apartment, hunting lodge, boat, etc.) for a weekend. To give an example, a church retreat center would be taxable for the dollar value of using that facility. If the fair market value of a nightly stay at the retreat center was $100.00 and an employee’s family stayed three nights, the taxable value of staying at the center would be $300.00.

(Recommended reading: "10 Do's and Don'ts of Pastoral Sermons")

Rule #3: Some tangible gifts are “de minimis fringe benefits” and non-taxable.

De minimis means “too trivial or minor to merit consideration.” De minimis fringe benefits are so minor that the IRS deems them too much of an administrative burden to track. 

De minimis fringe benefits include: 

  • a turkey, a ham, or a gift basket;
  • occasional typing of personal letters by a secretary;
  • occasional personal use of an employer's copying machine, provided that the employer exercises sufficient control and imposes significant restrictions on the personal use of the machine so that at least 85% of the use of the machine is for business purposes;
  • occasional parties, group meals, or picnics for employees and guests;
  • traditional birthday or holiday gifts of property (not cash) with a low fair market value;
  • occasional theater or sporting event tickets;
  • coffee, doughnuts, and soft drinks;
  • local telephone calls; and 
  • flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis).

(Recommended reading: "How to Better Protect Your Ministry's Religious Liberties")

The right way to give gifts to church volunteers

The regulations regarding gifts can seem complicated. Hopefully this article helps to clarify the types of gifts that can be given in order to bless your volunteers in an IRS compliant manner.

Failure to correctly report gifts could result in violations and fines, but that does not need to be your story. Let this article empower you to give gifts the right way while blessing your volunteers, honoring God, and keeping your ministry in good standing along the way. 

If you want to learn more about this topic, or other topics and strategies pertaining to church compliance, then I encourage you register for one of our conferences near you. 

Like Pastor Keith, I know you will not regret it!

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Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera

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About the Author

Church Planter. Speaker. Author. CEO. Raul Rivera has had ample experience in the church planting world. His current venture, StartCHURCH, has helped 1000's of churches to start right. Raul has compiled an array of manuals and software tools that help churches stay compliant with the IRS. He also hosts over 35 national conferences per year, training pastors on how to launch their churches. Raul is married to his wife Genel, and they and their five children live in Atlanta, GA.