When it comes to benevolence, the IRS makes a distinction between providing donations to people who lack the basic necessities of life (food, water, shelter, etc.) and awarding gifts to your employees.
Gifts to the Needy
Generally speaking, if your organization provides benevolence to someone in poverty or temporary distress, the IRS considers it a gift. Therefore, the recipient won’t be taxed for the donation’s value. Typically, such benevolence might address needs related to healthcare, housing, food, clothing, or transportation. It may be helpful to consult with a licensed local attorney or certified public accountant to develop guidelines that ensure individuals receiving benevolence qualify as “needy” before your organization provides aid.
Gifts to Staff
Employee benevolence typically refers to a situation where the employer decides to provide resources to an employee to help meet a need the employee has no way of meeting. Unlike public benevolence, any benevolent gifts your organization awards to a staff member are usually taxable, as required by the Internal Revenue Service.
It doesn’t matter if your organization is giving funds to an employee to make a bill payment or if it directly pays a bill on an employee’s behalf. The dollar amount should be included on the employee’s W-2 as taxable income. Some payroll software programs may let you list this “wage” as a separate line item, so that the gift is isolated from normal wages on an employee’s paystub and W-2 form.
Benevolent gifts are generally subject to the same tax withholdings as normal wages (Social Security, Medicare, state, and local taxes, etc.). This will likely affect several different boxes on the W-2 form, as well as state and federal employer deposits.
Develop a Benevolence Policy
When forming a benevolence program for employees or individuals, it’s important to document the criteria your organization will use to determine need. For example, you might provide assistance only in situations involving the death or unemployment of a family member who contributed to household income. Consider developing a written policy and maintaining documentation regarding each gift, in case you need to provide information to the IRS.
Please note: Documenting your church’s benevolence program does not alleviate the need to report any benevolence paid to a church staff member for tax purposes.
Apply Rules Fairly
If your organization has a benevolence policy, it’s important to follow the same criteria for employees as you do for other individuals. Generally, benevolent gifts to staff should be reasonable and be approved in writing by ministry leadership. Avoid giving benevolent gifts to staff members with significant authority in the organization, such as a senior leader or business administrator. The IRS may impose additional penalties for any gifts—benevolent or not—given to employees who have a say in where the church’s money goes.
Seek Professional Guidance
Done incorrectly, benevolent giving can cause substantial tax penalties for an employee. It could also cause your nonprofit organization to lose its tax exemption. Talk to a licensed local attorney or tax professional to ensure that your organization follows all appropriate procedures.