Skip to main content

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.

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

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...

Housing Allowance and Form 1099-MISC Reporting

Question: A church provides its minister a housing allowance but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister. (Starting in 2020, Form 1099-MISC is replaced with Form 1099-NEC for non-employee compensation.) If the church reports his compensation, including the housing allowance, on the Form 1099-NEC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040? Answer: This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2 , not as independent contractors who receive Form 1099-NEC . Box 1 on Form W-2 reports taxable compensation. It is reduced to reflect the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowa...

What you need to know about QuickBooks Desktop changes

  QuickBooks Warning for QB Desktop 2021 :   QB Desktop Pro, Premier, Enterprise, Accountant, & Mac 2021 versions are facing a service discontinuation after May 31, 2024. What this means : You can still use your desktop product but will no longer have access to QuickBooks Desktop Payroll, Desktop Payments, live technical support, Online Backup, Online Banking, and other services through QuickBooks Desktop 2021. QB will not provide security updates after June 1, 2024. The 2021 discontinuation warning is not new, but Intuit’s July 31, 2024 product announcement will change the landscape.   After July 31st – Intuit will only be offering QB Desktop Enterprise for new subscribers. The only entities who will still be able to continue to use their current desktop product’s full functionality and receive security updates will be those who have an existing active subscription by July 31, 2024.   Intuit has publicly stated, “all future innovation will happen in Quick...