With all the extra work your church’s leaders are putting in, you should give those volunteer and employee appreciation gifts you’re planning for after Easter!
But the good ol’ IRS requires that those volunteer and employee appreciation gifts be reported as income. And unfortunately, there aren’t any gift loopholes for churches.
Which means your church needs to report every cent given to every person, whether given as payment or a gift. (For exceptions, see our article on love offerings.)
If you don’t report everything, you can set up your employees and volunteers for unpleasant surprises, like extra bills around tax time. Plus, your church’s people are entrusting you to manage their donations well and use every dollar for God’s kingdom.
So those volunteer and employee appreciation gifts for Easter? You can still give them! Just follow these recommendations to make them tax-compliant.
Tl;dr: how to make volunteer and employee appreciation gifts for Easter tax compliant
- For an employee appreciation gift: Add the gift income to their W-2 at the end of the year.
- For a volunteer appreciation gift: Ask for a W-9 before giving the gift, and issue a 1099 at the end of the year.
How to make employee appreciation gifts tax compliant
When you’re giving a special gift to an employee (either full time or part time) you have two options.
Option 1 is to give a bonus in a paycheck. This added income will show up on the employee’s W-2 at the end of the year. So you don’t have to take any additional steps.
Option 2 is to give a gift by some other means, like a gift card. Since the employee needs to report that money as income, you need to add it to their total wages when you prepare their W-2 at the end of the year. That way, when the worker is filing their taxes, they (and the IRS) know they need to pay taxes on that income.
How to make volunteer appreciation gifts tax-compliant
Things get tricky with volunteers. Because in the IRS’s eyes, if you give a volunteer any money at all, even as a gift card, you make them an independent contractor.
So here’s the route to take with volunteer thank-you gifts:
- Get a W-9 from each volunteer before giving the gift.
- Give the volunteer their much-deserved gift.
- At the end of the year, generate a 1099 to report the gift.
The IRS requires issuing a 1099 only if you’ve paid a person more than $600 in a year.
You may need to explain to volunteers that the church does not withhold taxes on the gift money. The church is just doing its part to keep a paper trail; it’s the recipient’s responsibility to report the income to the IRS and pay taxes on it.
How to correct tax errors for gift income
The good news is you issue W-2s and 1099s at the end of the year. So if you make a mistake in the middle of the year—like you didn’t ask a volunteer for a W-9 or you didn’t make a record of the extra income for an employee—you have until the end of the year to correct your records before you issue the forms.
If you realize you made a mistake in a previous year, you can correct a W-2 or correct a 1099.
Need help getting your church’s finances tax-compliant?
At Parable, we help you keep track of where your church’s money goes so you can put every dollar on mission. Let’s chat about how your church can use its finances for God’s kingdom!