Benevolence gifts are gifts given to needy individuals or families to help with personal needs. Benevolence gifts made by a donor to needy individuals are not tax-deductible to the donor. To qualify for a charitable deduction, contributions must be made to a qualified organization and must be made to a qualified fund.
Contributions to a qualified benevolence fund may be claimed as charitable deductions if they are not earmarked for particular recipients, this includes personal gifts for pastors.
A church may want to help a particular individual or family that has unusually high medical bills or other valid personal financial needs but to announce that the church will accept funds for the individual or family and receipt the monies through the church makes the gifts personal and not deductible as charitable contributions.
Benevolence payments to an individual are never taxable to the individual as long as proper documentation is shown to support the need and the receipt isn’t a staff member of the church.
Any benevolence, love offerings, pastor appreciation payments, or gifts to pastors or employees are always reportable on Form W-2.
Section 102(c) of the tax code tells us that a “gift“shall not include…”any amount transferred by or for an employer to, or for the benefit of, an employee.
There are 2 exceptions to this rule:
- De minimis gifts…gifts so insignificant in value that accounting for them would be unreasonable or administratively impracticable. [IRC132(e)] An employee gift of a ham or turkey would be a good example of this rule. Such a “gift” would not be taxable to the employee…but a Christmas cash bonus would be taxable. (Cash, gift cards, or other cash equivalents are not de minimis gifts, regardless of how small the value).
- Employee achievement awards…requires a written, nondiscriminatory award program, which provides awards either upon attaining longevity goals or safety standards and meets other requirements for type of gift and limits on amounts.
IRS section 132 (e)(1) of the tax code which defines a de minimis fringe benefit as “any property or service the value which is so small as to make accounting for it unreasonable or administratively impracticable.”
The IRS decided that cash can never be a de minimis fringe benefit since it is not unreasonable or administratively impracticable to account for its value. The same thing goes for cash equivalents such as gift certificates or gift cards.
Since the IRS concludes that de minimis fringe benefits in section 132 refer only to “property or services” and not cash, some examples of this type of fringe benefit would include coffee, doughnuts, soft drinks, flowers, fruit, turkey, or ham.
So if you’re looking for a holiday gift to give to your well deserving employees or volunteer staff…a turkey, ham, or fruit basket may be a better option if you are looking for a nontaxable gift to bless them with.
Understand I’m not saying you cannot give a cash gift to your employees for the holidays. Just know that it will have to be included in their taxable income.
Examples of Staff Gifts:
- The church approves a $500 bonus for each employee for Christmas. The $500 would be included on each employee’s W-2.
- The Church gives each employee a Christmas ham. The ham would be considered a nontaxable de minims fringe benefit and would not need to be reported on the employees’ W-2 forms.
- The church gives each employee a $25 gift card from a local grocery store so their employees could pick out their own turkey or ham. The gift card is a cash equivalent. Its value (despite being such a low token amount) is definitely measurable, so it must be reported as taxable compensation.
- The church treats its employees to a well-deserved holiday dinner at a local restaurant. The value of the dinner averages $25. The value of the meals is a nontaxable de minims fringe benefit. The IRS tax regulations gives “group meals or picnics for employees and their guests” as an example of nontaxable de minims fringe benefits.
- A nonprofit gives each volunteer that worked so hard on their annual fundraiser a $25 gift certificate to the same restaurant the church took their employees to. According to the IRS, the gift certificate would be taxable income to each volunteer.
For more information read IRS publication 526.