I received a love gift from the church for pastor's appreciation. In the past I have declared this as business income and paid self-employment tax on it. Is this correct?
Yes, virtually all gifts from an employer are considered taxable in the same manner as an employee's standard compensation. The church should report this income along with the pastor's standard compensation in Box 1 on his Form W-2. However, if the church should omit the gift, you are still responsible to report it as both earnings for income tax purposes and for self-employment tax purposes. Generally, the only exception to the taxation of gifts by an employer to an employee relates to non-cash gifts of nominal value.
Per IRS Publication 525: Holiday gifts: If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. However, if your employer gives you cash, a gift certificate, or a similar it…