Gift Giving and Minister Tax Implications

Ministers do a great deal for their congregations. They offer an abundance of love, support and guidance for their parishioners, but above all else they teach and offer God’s love and words to those that need it most. For this reason, ministers often receive gifts from their congregation as tokens of their appreciation, these types of ‘love offerings’ often consist of cash or non-cash gifts and are often received throughout the year. These gifts are lovely sentiments, however, ministers need to keep in mind the minister tax implications that these types of gifts carry with them and how to properly account for them. 

Guidelines to Abide By

Minister taxes can be complicated so it’s a good idea for members of the clergy to run their tax preparation questions by professionals. The IRS also provides specific guidelines in reference to gifts and when they are considered taxable for ministers. According to IRS Section 102(a), “gifts that are given out of affection, respect, admiration, charity or like impulses” aren’t considered taxable income. Gifts given as a result of a service rendered or a service-based relationship are taxable, however. Identifying which of these groups a certain gift falls under may be hard to decipher so if there are any questions make sure to contact your minister tax professional.

Love Offerings

Oftentimes, church congregations will show appreciation for their minister by giving love offerings, usually around the holiday season. These gifts are freely given and not attached to any specific services rendered. Ideally, these types of gifts should be indicated on minister tax W-2 form as taxable income.

Excessive Compensation

Giving gifts to a pastor often creates the risk of what the IRS calls ‘excessive compensation’. This is when income is considered out of proportion to the church’s size and resources. Due to the fact that gifts are usually considered taxable income, large gifts may be at risk of receiving this designation. Consequences for excessive compensation include forcing the minister to return the excessive compensation and penalization of up to 225 percent of its value, and the potential for a church to lose its tax-exempt status.

Individual Gifts

Even individual gifts are often considered taxable income by the IRS due to the fact that ministers have established a service-based relationship with its parishioners. According to IRS, these offerings are taxable because the gift was motivated by a service-based relationship between the giver and the minister, whether the minister expected the compensation or not.

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Sarah Wozniak

Staff Writer, Page1 Online Marketing