This is the time of the year when love offerings are discussed in churches. “Love offering” is a church term for a monetary gift, perhaps for a pastor who is moving or retiring or another valued person where the congregation would like to offer a tangible token of its appreciation.
And the question arises: “Are these gifts deductible?” or “Does the recipient have to pay taxes on this?”
The answer to both, of course, is that it depends.
First, a little tax background:
The IRS allows a gift exclusion of $17,000 per year for one individual giving a gift to another individual in 2023. This amount is not taxed and is the reason kids can get money in the birthday card from grandma without them having to claim it on April 15 (as long as grandma is giving less than $17,000). Note that this is between individuals. There is no such exclusion for companies or other entities to give away money like this.
Second, the IRS allows a tax deduction for gifts made to a qualified nonprofit organization, including churches.
So what does this mean for love offerings?
Trinity UMC, for example, offers parishioners the opportunity to contribute to a love offering for a retiring choir director. They can make a check payable to the church and receive a tax deduction for that gift. On the choir director’s last Sunday, the church gives her a check for the total amount of the contributions. Because the gift comes from the employer (the church) she would have to report this as income and pay taxes on it.
First UMC takes a different approach. A trusted parishioner volunteers to collect gifts for this love offering. He accepts checks and cash then puts them together and on the choir director’s last Sunday gives her the combined contributions. As long as no single gift exceeds $17,000 the choir director does not need to pay taxes on this, but the church members cannot claim a deduction for the gift.
Anything given from an employer to an employee is taxable. So salary, bonuses, etc. are taxed and subject to federal income tax as well as state and local taxes, social security, Medicaid, etc. This would include any extra gift given to them. There is no way around this.
There are two things to be aware of. First, don’t try to get one over on the IRS by lowering an employee’s salary by $17,000 and the Finance Chair with a wink and a nod gives the employee a personal gift of $17,000. Second, in neither case above does it matter if the employee receives cash, a check, gift cards or any other means of payment. They are all treated the same. Love offerings are wonderful things, just make sure you know the rules and are communicating them accurately to both your members and the staff member you are