August 19, 2010

Benevolent Fund Disbursements to Employees

Question:

An employee of a church was given a gift from the church benevolent fund to assist with curing a personal financial problem. Should the church withhold the taxes on this benevolence from the employee's pay check, or simply issue a W-2 to the employee, or do nothing?

Answer:

It is wise to be careful when distributing gifts to employees from the church's benevolent fund. As one might imagine, supplementing an employee's low pay with, presumably, non-taxable gifts from the benevolent fund could be tempting.

Nevertheless, most churches do distribute benevolent fund gifts to members and non-members in the community who have emergency financial needs. These funds have been collected from donors who wish to be generous with those in need; they are not motivated to disguise compensation. Accordingly, I believe that one-times gifts such as the one described above should be classified as benevolent gifts that are non-taxable and non-reportable on Form W-2 or any other form.

On the other hand, if a church congregation encourages benevolent fund contributes to help supplement an employee's low pay and, subsequently, disburses these funds to him/her, then these payments should be reported as taxable income to the employee.

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