Santa, Pastors, and the Tax Man
As the holiday season approaches, many churches are considering how to show appreciation to their pastors and staff. Before handing out those holiday gifts, it’s crucial to understand the tax implications. Take our quick quiz to find out what’s taxable and what’s not!
Quiz: Is the Gift Taxable?
1. A church gives the pastor a $100.00 gift card to a local restaurant as a Christmas gift.
Is the gift taxable?
Answer: Yes. Since the gift card is easily convertible to cash, it should be included on the pastor's W-2 as part of salary or wages.
2. The same church takes the pastor and staff out to the same restaurant for a Christmas dinner, and the bill exceeds $1,000.00.
Is the gift taxable?
Answer: No. The dinner is not easily convertible to cash and is considered a de minimis fringe benefit, which is generally not taxable.
3. A church gives the pastor a Christmas bonus of $1,000.00.
Is it taxable?
Answer: Yes. The bonus is considered additional wages or salary, making it taxable.
4. The church receives an offering for the pastor, asking the congregation to make the checks payable to the pastor, rather than the church.
Is the gift taxable?
Answer: Maybe. If the church informs the congregation that these contributions will not be receipted (and thus not tax-deductible), it’s possible these gifts may be treated as non-taxable. However, this is an aggressive stance that could be challenged if audited by the IRS. The IRS may scrutinize such gifts more if multiple offerings are promoted or if the amount is substantial.
5. An individual church member gives the pastor cash or a gift card as a Christmas gift.
Is the gift taxable?
Answer: Probably not. Gifts given directly from an individual to the pastor—such as cash or a pre-paid debit card—are generally non-taxable as gifts. However, if the gift is substantial or perceived as compensation for services, it might be considered taxable. Note that the giver cannot obtain a tax deduction for these personal gifts.
Summary: What’s Taxable and What’s Not
Taxable Gifts:
Gifts from the church that are easily convertible to cash (checks, pre-paid debit cards, gift cards) should be reported as taxable income.
Offerings received by the church for the pastor, if the church receipts the donations, are taxable.
Non-Taxable Gifts:
Personal gifts given directly from a church member to the pastor are generally non-taxable.
Gifts from the church that are not easily converted to cash (such as gift baskets or meals) are generally non-taxable.
Suggested Approach: Minimizing Tax Liability
Adjust the Gross Amount: To cover the necessary taxes, consider increasing the gross amount of the Christmas gift or bonus. For example, if you want to give a $1,000.00 gift, increase the amount to cover taxes so the net gift remains $1,000.00.
Give Non-Cash Gifts: Opt for gifts that are not easily convertible to cash, like gift baskets, to avoid tax complications.
Encourage Personal Gifts: Suggest that members give gifts personally to the pastor to avoid tax issues for the church.
Need Help Navigating Holiday Gift Taxes?
For assistance with holiday gift tax planning and other legal concerns, contact our team by clicking the button below. We are here to guide you through the complexities of tax law and ensure compliance during the holiday season.
