If money is collected and distributed by the employing church, it may be taxable income.
Some church members give their pastor, or other church employee, a personal gift on special occasions such as a $20 bill enclosed with a birthday card. These personal gifts may be treated as nontaxable gifts by the pastor because they were not distributed by the employing church.
On the other hand, when a church collects a love offering, and informs the congregation that their contributions will be receipted by the church, this requires the individual offerings to be treated as a single distribution by the church. This triggers the rule requiring distributions by employers to their employees to be treated as taxable compensation.
If a church collects a one-time offering on a special occasion for a pastor, informs the congregation that their offerings will not be receipted by the church and are not tax-deductible, and asks persons who give checks to make their checks payable directly to the pastor, it is possible that these individual offerings could be treated as nontaxable gifts to the pastor. This is an aggressive position, however, that probably would be challenged by the IRS if the pastor were audited. And, this position becomes even less likely if more than one love offering is collected during the year, the amount of the love offerings is substantial, or the church was directly involved in promoting the offering.
Adapted from "Love Offerings," a Weekly Lesson on ChurchLawAndTax.com. Weekly Lessons offer training for seven key church positions and are available to subscribers of ChurchLawAndTax.com.