July 15, 2010

Love Offerings to Pastor Need Restructuring

Question:

A minister gets quite a bit of love offerings each week, usually cash. The minister then turns around and gives the majority of it to the church. What is your opinion of the treatment both from an income and deduction standpoint?

Answer:

As currently structured, the church must submit the minister a Form W-2 with the full amount of his weekly receipts recorded as taxable income in Box 1 of the form. This income is subject to both income tax and self-employment tax. The contributions should be reported by the church to the minister, as it would to all of its donors, consistent with IRS Publication 1771. He may, in turn, deduct these contributions on Schedule A.

It appears that the church finances could benefit from planning that most often takes place during observation of church budget processes. The budget should establish a salary and benefits package, including a housing allowance designation. This will likely reduce the pastor's weekly receipts, but also leave the church with more of the funds currently received as donations from the pastor.

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