17 Sep 2020

Preparing for Pastor Appreciation Sunday

Kristen Calicott

Pastors are a gift to the church. These leaders drive their congregation towards the goals of spreading the gospel and bringing salvation to those in need. They invest their lives in helping their community spiritually grow and thrive. Their accomplishments and commitment are something that so many wish to honor—and that's why a special day every year is dedicated to celebrating them!

The 2nd Sunday of October is regarded as Pastor Appreciation Day, and the whole month of October is Pastor Appreciation Month. Many churches and ministries use this time to celebrate and encourage those God has called to lead by giving them a gift. The types of gifts given range anywhere from gift baskets and gift cards to a vacation getaway, or in some instances, even a car! 

What kind of gifts can you give your pastor to show your appreciation without causing a headache when you file your taxes? For the gift to remain nontaxable, you need to understand the IRS's rules on gifts given by your church. 

What does the IRS say about gifts?

Internal Revenue Code (IRC) section 61 says that all income from whatever source derived is subject to taxes unless the tax code makes an exception. The law does make a provision under IRC section 102(a) stating that gifts do not have to be reported to the IRS. However, IRC section 102(c) specifies that a gift given by the employer (church) cannot be considered a gift since it was given in consideration of services rendered. 

By this standard, everything you give to your pastor as a gift would be considered taxable income to them, right? Well, not exactly. There are some rules to consider. 

The Rules of Gifts

Gifts rule! Well, they have actual rules, too. There are specific laws to consider when gifting your pastor, mainly whether the gift is taxable or not. Those rules are listed below.

1. Gifts of cash, gift certificates, or gift cards are always taxable.

Treasury Regulation 1.132-6(c) clarifies that cash, or cash equivalents, are subject to federal income tax and social security tax.

 Examples of gifts which are considered cash, or cash equivalents, include the following:

  • Actual cash or check (of every amount)
  • A gift card (of every amount)
  • Redeemable gift certificates (of any kind)

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

Physical gifts like cell phones, computers, and other items are still taxable. While they are not cash, these types of gifts are considered fringe benefits and are subject to taxes. 

For a full guide on what qualifies as a fringe benefit, consider Publication 15(b), which walks explicitly through filing and reporting fringe benefits. The main thing to remember about fringe benefits is that the item is taxable based on its value.

Even if the gift is not taxable, the church should still catalog the items' expenses within their bookkeeping records.

3. De minimus fringe benefits do not have to be reported as taxable fringe benefits.

Perhaps the most common nontaxable fringe benefit is known as a "de minimis" fringe benefit. In essence, the term de minimis means minimal

So if the gift you give to your pastor is so minimal in value that it would be unreasonable or administratively impractical to account for, your pastor will not have to include the gift's value as taxable income.

These gifts may include the following:

  • Handwritten letters from members of the congregation expressing their gratitude
  • A gift basket containing some of the favorite things your pastor enjoys, such as candy, coffee, favorite pens, etc
  • A video presentation of the past year of the church. This could also include recorded thank-yous from the congregation to the pastor.

These gifts may not be as extravagant as a paid vacation or a car, but they are heartfelt and will be just as meaningful to your pastor. 

If you have further questions, the StartCHURCH team is here to help! Give us a call today at 877-494-4655 to ensure you have all of the information you need to meet legal compliance.

Another Type of Gift for Your Pastor

There is another type of nontaxable fringe benefit that you may have heard of: a working condition fringe benefit. However, for a benefit to be considered a working condition fringe benefit that is excluded from taxes, the benefit must relate to the pastor's job.

For instance, if the pastor has to pay for parking when traveling for the church, that would be a working fringe benefit that the church can pay for and not be taxable to the pastor.

Additionally, did you know that registration fees for church leadership and pastoral conferences paid by the church for the pastor are considered a working condition fringe benefit? What could be better than sending your pastor to an incredible church or leadership conference? This is another excellent gift idea to consider!

The Exceptions to the Rules

There are a few exceptions to the rules listed above. The Internal Revenue Code provides that the church can give a gift to an employee, including the pastor, so long as it meets the requirements of a qualified employee achievement award outlined in sections 74 and 274(j)(B). 

The church is allowed to give the employee a tangible gift as long as it meets the following criteria:

  • The "award program" is put in writing, and awards are given under conditions and circumstances that do not create a significant likelihood of it being disguised as compensation.
  • The award is tangible property. What exactly is tangible property? Items such as laptops, tablets and other devices, and office chairs and desks are tangible property able to be rewarded to the pastor. It cannot include travel, vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, etc. 
  • The award is for the length of service and is given as part of a meaningful presentation or ceremony once every five years, beginning at the end of his or her fifth year of service. 
  • The award cannot surpass $1,600.00 in value so long as the average of all awards to all employees is $400.00 or less.

Take the Next Step

With Pastor Appreciation Day quickly approaching on October 11, 2020, I hope this information has given you a great place to start deciding on a special gift for your church or ministry leaders. 

Navigating and making sure your church is keeping up with different accounting requirements can seem daunting when it comes to gifts and financial responsibilities. That's why the team at StartCHURCH is here to make your process smooth and easy!

If you need a team to help you with your church's bookkeeping and accounting responsibilities, we encourage you to use our Bookkeeping Service. We designed our Bookkeeping Service to meet the specific needs of pastors and church leaders just like you. Plus, our bookkeepers are ministry-minded and will give you the special care you need to ensure your church's financial decisions are in legal compliance. 

Should your church or ministry need any help regarding compliance, or if you have questions related to taxes and bookkeeping, speak to a specialist by calling 877-494-4655 or click the button below to schedule a call.

Schedule a Call Today!

Click Here

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


And receive our free eBook Sequence: A step-by-step guide to successfully launching your church.