Did you know that a financial gift given to a minister is a tax liability? The minister must report any gifts given from their congregants on their taxes and pay a tax on the gift amount. Even bonuses and love offerings from the church to the pastor must be reported.
In an article written by Frank Sommerville, JD, CPA, "Benevolence: The right help given the right way," he states: “Love offerings, pastoral appreciation gifts, Christmas gifts, anniversary gifts and birthday gifts that flow from the church to the church employee are always taxable. Even retirement gifts are taxable to the recipient. No exceptions to this rule exist.”
Many church elders and church boards don’t even realize this and forget to consider the tax amount deducted from the total amount they are wanting to give. As long as they consider the amount given to IRS, and then are pleased with the amount still received by the pastor, all bases are covered.
Many churches and church members really appreciate their pastors and want to demonstrate their appreciation in tangible ways by giving gifts directly to their pastors. This is so great! We only wish to help ease the tax-season shock and fees in penalties by making sure these gifts are handled and presented correctly.
Many pastors honestly believe that appreciation gifts given are not taxable. Unfortunately, they are. Section 102 (c) of the IRS tax rules states that "gifts that flow from an employer to an employee must be subjected to income taxes." No exceptions are allowed. If the relationship is between a church member (a gift giver) and a pastor (the gift receiver), then the IRS (and courts) hold the gift as a "payment for past or present services rendered." If the pastor does not report this, the pastor could be subject to income taxes, severe penalties and interest.
If you have any questions or requests, feel free to reach out to us by using our contact form.
Richard Hammer: Church and Clergy Tax Guide