The IRS May Say That You Are On Salary At the Church, Even If You Believe You Are Not
By Raul Rivera
Because of the nature of our tax system, while most churches are focusing on outreach and other ministry functions of the church, many pastors and church treasurers fail to think about on taxes. Unfortunately, they miss the mark and often times under report the pastor's income.
This happens because there are many pastors that are not on salary at the church and do their best to not be a burden to the church's very tight budget. However, even though the pastor does not draw a salary from the church, on one or two occasions per year the congregation may collect a love offering for the pastor and present it at the end of a service. This usually happens on the pastor's birthday or anniversary, during Christmas or pastor appreciation month. It is a small token of the congregation's love and esteem for their pastor--a chance for them to sacrificially give back to him/her for his/her service.
The IRS does not oppose the church giving a love offering to the pastor. As a matter of fact, the IRS knows that this is a common practice among many churches across America and therefore, Publication 517 states that the love offerings must be reported as taxable income to the pastor on form W-2. The IRS calls the love offering remuneration for services, and according to Section 6051 a W-2 must be issued to the pastor.
Moreover, if the pastor gets reimbursed for his/her gas, cell phone and other expenses without an accountable reimbursement plan, that, too, must be reported on the pastor's W-2. Failure for the church to report the income causes the love offering and the reimbursements to be treated as excess benefit transactions and results in a 200% fine to the pastor, in addition to back taxes and penalties for failure to report income.
Even if you are not on salary, please consider whether you have received love offerings or reimbursements under a non-accountable plan. If so, be certain to report it on the W-2 form. The IRS declares this your salary.