Q: We are having a special occasion program for two ministers at our church. If they receive money as a gift from members of the congregation, which would be collected in baskets on the tables and not counted on the offering table, would the ministers have to report this money on their taxes?
Special occasion gifts pose several challenges for churches and for the ministers involved.
All funds that are collected by the church are required to come under the control of the church.
Therefore, if the church hosts a special occasion program, it is required to take possession of the funds that are given at the program and properly account for the funds. This requires the church to process the funds through its normal procedures, thus requiring the church to count the offerings and deposit the offerings.
This is true in any setting that is a part of the church’s activities including services that include an announcement of the special offering, funds collected individually by representatives of the church, i.e., the deacons and special parties hosted by the church.
Special occasion offerings are just another method of compensating a church’s ministers. Therefore, the church should process the amount it desires to give to the minister through its normal payroll procedures.
The church is not allowed to give a “gift” to an employee, therefore, all funds given through the special occasion gift are fully taxable to the minister.
Although congregations love to show their affection and gratitude to their pastor with special monetary gifts, the church is still charged with making sure the minister’s compensation is reasonable and not excessive compared to churches of similar size, geographic location, and other factors.
Therefore, the minister should not receive a special payment that makes his total compensation package exceed a reasonable amount.
Additionally, all compensation is required to be properly approved prior to payment by the church.