How to Give Gifts to Your Staff for the Holiday Season
By Christine Bove
We at StartCHURCH want to help churches and ministries be best prepared for honoring and celebrating their staff members while staying in compliance with the IRS, especially during this Christmas season.
Often times, churches will give their staff members gifts to thank them for their hard work and to celebrate the Christmas season together.
Everybody loves a present, especially pastors who work hard and sometimes receive little appreciation for what they do.
What most pastors don’t realize is that the gifts their churches give can have a great impact, both emotionally for the recipient and tax-wise for the church itself.
Though a very thoughtful and kind gesture, gifts can cause problems very quickly if the church doesn’t categorize the gifts they give correctly on their tax forms.
Section A
Per Treasury Regulation 1.132-6, any gift of cash or cash equivalents like gift cards is subject to federal income tax and social security tax.
Therefore, if your church hands out any gifts in the form of cash or cash equivalents, it would treat the gift as an honorarium, which is a form of compensation. The church would keep track of the amount and then report it on the employee’s W-2 or 1099-MISC for the end of the year tax report. This is applicable for any employee or contractor.
For any gift or cash equivalent given that is over $100, the recipient bears the burden to pay the tax on this gift when it comes time to pay taxes, per IRS regulations . The church cannot take on the responsibility for paying the taxes for it, unfortunately; only the person receiving it can.
Example: Jim received a $50 gift card and a $500 Christmas bonus from his pastors at his church. The church will file that they gave Jim a $50 gift card as well as the $500 bonus on his W-2 and in their bookkeeping records. At the end of the year, Jim will owe taxes on $550 from his gift from the church.
Section B
Physical gifts such as tablets, cell phones, vehicles, and laptop computers are all also taxable. They are considered fringe benefits. For a full guide on what qualifies as a fringe benefit, look to the IRS Fringe Benefit Guide.
Publication 15(b) specifically walks through filing and reporting fringe benefits. The main thing to understand with fringe benefits is that the items are taxable based on their value. If the church is accepting responsibility for paying for an item for a staff member, then the staff member is responsible for the taxes owed on said item.
Example: Brenda received an iPad for her Christmas gift from her church staff. It is valued at $1,200, so Brenda would have to pay taxes on the cash value of the iPad at the end of the year when she files. Along with Brenda, the church needs to file that iPad as part of her fringe benefit compensation on her tax form.
For any kind of fringe benefit, it is important for a church to have policies established within their organization for their staff. Such policies bring clarity to whomever is interacting with their fringe benefits as well as holds the organization accountable for how things should be filed.
One such policy is a cell phone policy. If a church is paying for the senior pastor to have a cell phone, then there should be a policy in place outlining what is classified as personal use, what is for business use, and what is needed to be done for taxes at the end of the year.
If you have any further questions or are unsure of your own policies, we at StartCHURCH would love to help get those taken care of for you. Call us at 877-494-4655.
Section C
For personal gifts, the good news is that you typically don’t need to file those on your taxes. The cost amount is so minimal that the IRS doesn’t see it worth filing those types of gifts.
While you don’t have to record those types of gifts for the IRS, it would be wise to still record those expenditures in your church books.
Blessing your staff
While there are a lot of details and information to consider when giving your staff gifts, you shouldn’t let that deter you from blessing your staff. There are various ways to bless your staff, and sometimes that requires further paperwork—but the gesture is still appreciated all the same.
If you are finding yourself needing help keeping up with your church’s books or filing your ministerial taxes, StartCHURCH can help with that. We have a Bookkeeping Service and Minister’s Tax Service, all designed to set your mind at ease and your church’s finances organized.
For more information, call us at 877-494-4655.