October 10, 2011

"Benevolent" Gifts to Volunteers

Question:

At times, a church gives out monetary "thank you" gifts to volunteers regularly involved with ministry. It has considered this to be a "benevolence." Since there is a "service" done, though with no monetary reward in mind, is this still benevolence, or should this be considered a Form 1099-MISC item? Also, if this is done on a regular basis, would this now be considered more of an employer/employee item?

Answer:

These gifts should be considered taxable income. If the "volunteers" are independent contractors, then Form 1099-MISC should be issued to each individual paid $600 or more. Employees should be issued Form W-2 with applicable withholdings.

IRS Publication 3079--Tax Exempt Organizations and Gaming--addresses some of these issues with an example. While I personally am opposed to gaming activities, the IRS position on volunteers can be seen by reviewing portions of the publication.

"Example: ABC Organization operates a private school and sponsors [fundraisers] to raise revenue for the school. Parents who work at the [fundraising] session are given a tuition reduction of $50 for each week they work. This reduction of tuition is compensation to the parents; they are not working as “volunteers.”

"Compensation may also include non-monetary benefits such as free drinks or food if such items are more than a mere gratuity and are intended to be compensation for the workers’ services. On the other hand, a worker who receives merely insignificant monetary or non-monetary benefits is considered a volunteer, not a compensated worker. Determining whether a benefit is insignificant requires consideration not only of the value of the benefit but also:
• The quantity and quality of the work performed;
• The cost to the organization of providing the benefit; and
• The connection between the benefit received and the performance of services."

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