Q&A: Is Benevolence for a Church Employee Taxable?

Can a church give a cash benevolence gift to an employee? And is it taxable income?

Yes and yes.

Yes, a church can give a benevolence gifts to an exmployee. And, yes, it is taxable. The Internal Revenue Code requires all benevolence payments provided to employees be taxed. The church must add the amount of the benevolent payments to the employee's Form W-2, and if nonclergy, withhold all payroll taxes like the payment was wages. It makes no difference if the payment is direct or indirect, like to the employee's doctor.

As a result, "love offerings," pastoral appreciation gifts, Christmas gifts, anniversary gifts, and birthday gifts that flow from the church to its employees are always taxable. Even retirement gifts are taxable to the recipient. No exceptions to this rule exist.

If the church pays a benevolence payment to a "control person," then the tax consequences ...