A church can give money to an individual provided that it is for a need that the individual cannot meet on their own. The church should document the need in writing, have a benevolence statement, and give according to that statement. Monetary gifts from a church to an employee, guest speaker, or guest musician usually count as taxable income. For more information on gifts from churches to individuals, see below.
Can a Church Give Money to an Individual?
A church can give money to an individual provided certain stipulations are met prior to the giving. The church may provide a “benevolent love gift” to a person or persons, according to Christianity Today‘s Church Law & Tax publication. Benevolent love gifts meet two requirements:
- The recipient must have a need.
- The recipient must be unable to meet that need without assistance.
Before making a gift, a church should document the recipient’s need and inability to meet that need in writing. Additionally, the church should have a Benevolence Policy in place prior to gifting money to an individual and should adhere to its stipulations.
If the church follows all steps of the benevolence policy correctly and the gift meets the two conditions for a benevolent love gift, this type of gift does not need to be reported for tax purposes, as long as the individual is not an employee of the church.
Is There a Limit to How Much Can a Church Give an Individual?
A church may give any amount to an individual provided it does so to meet the recipient’s needs. However, there are several pitfalls that a congregation should consider prior to making large or recurring distributions to a person.
If a church finds itself giving in a “regular and continuous” manner to an individual, it may want to consider finding other means of assistance. Richard Hammar’s Benevolence Fund Basics states, “Nearly every church has at least one person who is continually in need, or at least continually requests assistance. The IRS grows concerned when the benevolence assistance is regular and continuous” (as quoted in Church Law & Tax).
Distributions or assets given to employees or guest speakers would qualify as income rather than gifts, according to standard accounting practice and as noted by Tony Cooke Ministries. Such giving is not tax-deductible. Additionally, congregants cannot make a donation to the church and stipulate a specific recipient.
Are Benevolent Gifts Taxable?
Benevolent gifts to individuals generally do not count as taxable income. The church does not need to report the gift, ask the individual for a W-9, or report the amount on a 1099 form.
Church employees are an exception to this rule. Distributions to employees count as taxable income unless the church has set up a formal hardship plan that meets the guidelines stipulated by IRS Publication 3833.
What Steps Should a Church Take To Avoid Tax or Legal Trouble?
No matter the size of the church, a congregation should always have legal counsel and tax professionals with whom its leadership can consult. While there are many options in this field, consider visiting the websites of The Church Lawyers or Ronald Blue & Co. CPAs and Consultants to find out more about legal and tax services for churches.
In addition to the steps mentioned above, a church should always have a written Benevolence Policy. It should precisely follow the guidelines set within that policy when giving. The ECFA, a nonprofit dedicated to equipping churches for financial integrity, provides a sample policy for free online.