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Q&A: Beware Giving Volunteers Cash, Gift Cards, and Gifts

It’s natural to want to bless volunteers with cash, gift cards, and gifts. But how you do it matters to you, them and the IRS.

Frank Sommerville, Attorney, CPA
Bio

Q: Regarding gifts to volunteers, whether it involves gift cards, cash, tangible gifts (such as a guitar) or a trip, must we report the amount for tax purposes? If so, who reports it? The recipient? The church? And if the church must report it, how is it done?

The volunteer reports the taxable income on their tax return, regardless of the amount. 

Also, if the total value of the gift(s) is $100 or more, the church is responsible for reporting the recipient’s income and payroll tax withholding for the recipient on a form 941 and a form W-2.

Q: But they are volunteers, not employees. They are not in our payroll system. Does this mean all volunteers [who] receive something of $100 or more are now treated as employees? If so, our small church would potentially have over 100 employees.

That’s true. And it’s a testament to the numerous problems raised by providing volunteers cash, gift cards, gifts and other items of value. These problems include:
  • The definition of a volunteer is one who works without compensation in any form. Therefore, the volunteer becomes an employee once the church provides anything valuable in recognizing their efforts.
  • The volunteer [who receives gift cards, cash, or tangible gifts] is a part-time employee, and the church must pay workers’ compensation premiums on the volunteer’s earnings.

For these reasons (and many others), we discourage using cash, gift cards, or tangible items worth more than $100 to recognize the services of volunteers.

Q: Okay, so, can we give volunteers a 1099 at the end of the year for accounting of any gifts we gave to them if the total amount is above $100? Or do we have to enter them into our payroll company as employees? Either way, we would have to get their social security number. 

Unfortunately, the correct answer is usually form W-2. Because the analysis is the same as for every worker. Only in rare and unusual circumstances would a volunteer qualify as an independent contractor. In 99.99 percent of the instances, Form W-2 is correct.

Senior Editorial Advisor Frank Sommerville frequently lends Church Law & Tax members his expertise and insights. Find more of his work here.
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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