Skip to main content

Annual Review of Church Christmas Gifts to Their Pastors (December 2009)

I’m getting the idea that every December will present another opportunity to review the tax law on Christmas gifts given to ministers. If you type “Christmas” in the above Search Window, you will find a number of postings on this topic. Here’s a review (much of it coming from my 12/15/08 post).

IRS Publication 525 directly addresses what it calls 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 item that you easily can exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved."

At Christmas time, generous lay people often seek opportunities to give to those who have ministered to them during the year. Great idea! Gifts between individuals are neither taxable to the recipient, nor deductible to the donor.

The challenge comes when the entire congregation as the minister's employer (Publication 517) decides to take a collection and give him a Christmas bonus. This is viewed as an action by the minister's employer to compensate its employee--it's taxable.

I suppose that a church's lay leaders could remind its members: "Now we're getting close to Christmas. Don't forget to add our minister to your Christmas list. You can catch him in his office or here's his home address." But as soon as the congregation acts in concert as his employer the gifts are taxable to him and deductible as charitable gifts by the donors.

A few additional comments from my 1/22/09 post:The rules I’ve stated above apply when an employer (the church congregation acting as a corporate body) takes a collection and gives it to its employee (the pastor). As a 501(c)(3) organization, a church is a qualified charitable organization. Gifts to it are tax-deductible. Compensation paid to an employee is taxable.

When I’m asked about this subject, all I need to hear is "the church solicits..." and I know we are addressing compensation issues, not gift issues. Making checks out to cash accomplishes nothing to defeat both the letter and spirit of the law.

Comments

  1. Does this mean that if a congregation is solicited to contribute to a Pastoral Christmas "Love Offering" it should appear on their year end contribution statement? The total collected from the entire congregation is split evenly amongst the pastoral staff. Am I correct in my understanding that you are stating the amount paid to the pastoral staff member should be included on their W2 as taxable income? If it wasn't, can/should it be issued on a 1099? Please reply as soon as possible.

    Thanks :)

    ReplyDelete
  2. If the church takes corporate action to to contribute a "love offering" to its pastors (employees), then the love offering is deductible to the donors and taxable to the recipients.

    Most church's correctly classify their pastors as employees. If labeled correctly as an employee, the love offering should be recorded on the pastor's Form W-2.

    ReplyDelete

Post a Comment

Popular posts from this blog

Qualified Small Employer HRAs

On December 13, 2016, President Obama signed the 21st Century Cures Act, allowing qualified small employers to offer Health Reimbursement Arrangements (HRA) that follow certain terms.

After the Affordable Care Act was passed, the IRS originally determined that an HRA was not a qualified group health plan. The Cures Act overrules this decision. HRAs are again an option for qualifying small employers.

To be eligible, the small employer must have fewer than 50 employees and must not offer a group health plan to any of its employees.

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must be subject to the following terms.
No salary reduction contributions may be made (i.e., 100% employer-funded).Employer must receive proof of employee’s minimum essential coverage.Reimbursements must be for qualifying medical expenses.Reimbursements for any year cannot exceed $4,950 (or $10,000 for family coverage), which will be adjusted annually for inflation.Employer must offer the …

Housing Allowance when Bartering for Rent Payments

Question:

If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?

Answer:

Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence. The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.

See a past MinistryCPA post regarding this topic: http://ministrycpa.blogspot.com/2016/09/services-to-church-in-lieu-of-rent-of.html

Mission Trips Involving Both Charitable and Personal Time

Question:

A church group went on a two-week mission trip, and a few of the members stayed an additional two weeks for personal time. Will the members who stayed the two additional weeks be able to deduct expenses from the trip?

Answer:

IRS Pub 526 covers the topic of Charitable Contributions and, more specifically, travel expenses associated with charitable trips. The publication states that travel expenses will be deductible “if there is no significant element of personal pleasure, recreation, or vacation in the travel.” The publication also states, “The deduction for travel expenses won't be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you don't have any duties, you can't deduct you…