Gifts to Ministry Staff

Nonprofit ministries often make gifts to employees to show appreciation for their dedicated service. These payments may take several forms and have important implications to the ministry, staff members, and donors:

  • Gifts made by an individual directly to a staff member with no ministry involvement. When a giver makes a payment directly to a staff member of the ministry, this is a gift which is not tax-deductible to the giver and is taxable or nontaxable to the recipient—based on whether the giver’s intent was to compensate the recipient for services. A gift of this nature does not generally raise any tax issues for the ministry.
  • Gifts made by an individual to the ministry but earmarked by the giver for a particular staff member and the gifts are not intended for use by the ministry. If contributions are earmarked by the giver for a particular individual and not intended for use by the ministry, they are not tax-deductible as charitable gifts. This level of gift earmarking by givers suggests that the ministry lacks the discretion to use the funds to carry out its functions and purposes. The use of terminology such as a “love gift for an individual” or a “desire to bless an individual” does not change the non-deductibility of such a gift. These amounts are not taxable to the staff member.
  • Gifts to staff members from ministry funds. Often gifts are made from ministerial funds which are not required by contract or a typical employment plan. The gifts may be given in appreciation near a holiday, a birthday, or an employee anniversary. The gifts may be given in relation to personal medical or financial crises.

    Gifts to staff members from ministry funds are taxable and subject to payroll tax treatment and reporting unless they meet one of the following exceptions:
  1. De minimis gifts. These gifts are impracticable of specific valuation, and are generally less than $25 in value. IRS rulings have emphasized that the difficulty in valuing a de minimis gift is just as important as the small value. Cash, gift cards, or other cash equivalents are not de minimis gifts, regardless of how small the value.
  2. Employee achievement awards. To avoid taxation, achievement awards must meet specific tax law requirements. The law generally requires a written, nondiscriminatory achievement award program, which provides awards either upon attaining longevity goals or safety standards and meets other requirements for gift type and amount limits. If the awards are cash, cash equivalents, gift cards, gift certificates, vacations, meals, lodging, tickets to theater or sporting events, or similar items, the amount is taxable to the employee.
  • Gifts to an educational institution to pay tuition for a staff member’s dependent. There is no charitable tax deduction for a gift to a ministry that is designated for the educational expenses of a staff member’s dependent. If the ministry uses the funds to pay the tuition of a staff member’s dependent, even if the funds are paid directly to the educational institution, the amount is taxable and subject to payroll tax treatment and reporting with respect to the staff member.

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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