August 10, 2009

Benevolent Gifts to Employees (Emergency or Not?)

Question:

If a church issues benevolence assistance for an employee of the church is this considered taxable income to that employee? Additionally is the church required to pay the taxes on this benevolence assistance? The payment would not be issued directly to the employee but rather to a vendor on his/her behalf.

Answer:

Generally, gifts to an employee by an employer are taxable to an employee (reportable as such on Form W-2) and subject to the same employer taxes (i.e., matching FICA tax of 7.65 percent) that any other compensation entails. This is true regardless whether the payment is made directly to the employee or to another payee on the employee's behalf.

However, employees are also members of local congregations and ocassionally have emergency issues that a benevolent fund might respond to just as it would to any other recipient. These benevolent gifts are generally irregular and responsive to uniquely identified needs (e.g. a doctor's bill, a utility payment, or a plane ticket to attend a funeral). This is probably the rare exception to taxability of a payment from a church fund to a church employee that could avoid taxation.

On the other hand, if the payments are regular and intended to supplement an otherwise below market rate of compensation, it is my judgment that the regular payments on behalf of such an employee would certainly be taxable to the employee and subject to employer payroll taxes.

2 comments:

  1. Hi Corey,

    Thanks for writing on this topic. Do you have any sources you can reference to support your stance on this issue? I'd love to find something that supports the idea that even a rare exception can be made for a church employee receiving a benevolence disbursement and calling it nontaxable.

    ReplyDelete
  2. Situations such as yours are universally dependent on the specific facts and circumstances of each case. Resolution will likely require professional assistance.

    ReplyDelete