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Annual Reminder: Are Gifts to Clergy Taxable or Nontaxable?

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Question:

Are gifts given to a pastor from church members considered taxable income to him?

Answer:

To determine if the gifts are taxable to the pastor the following items must be considered. 

An important consideration in determining the taxability of gifts is whether they were given through the church or directly from individuals. From the perspective of the IRS, if the church takes corporate action as an employer in collecting and distributing the gifts, then the gifts are taxable to the pastor as an employee of the church (for example, an annual Christmas collection). Also, according a recent court case, if the church regularly solicits members to give through a structured program, this also indicates that the gifts are taxable to the pastor. In Felton v. Commissioner the court determined that a church's solicitation of members to use special blue envelopes to insert cash gifts which were handed directly to the pastor after each collection led to taxable income to the pastor.

A second consideration is whether the gifts are actually disguised salary. If the gifts were given in exchange for services or with the expectation of future services then they are fully taxable to the pastor. It is also important to consider how the pastor's salary compares to the amount he receives as "gifts." If the church provides the pastor with a less than fair market value salary and then encourages church members to give directly to the pastor to make up for it, the gifts are considered taxable.

Remember, unless the gifts are given through the church and taxable to the pastor they will not be deductible by the donors. Any gifts that are taxable to the pastor should be reported with his other earnings on Forms 941 and W-2. 

Whether given through the church or directly to your pastor we highly recommend showing your appreciation to your pastor through giving. Of course, individuals are always welcome to give directly to the pastor and his family on their own; these gifts are neither taxable income to the pastor nor deductible write-offs by the member.


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