Pastor Appreciation Day – Are your “love offerings” taxable income to your pastors?

Posted September 2019

October is Clergy Appreciation month, with the second Sunday of October denoted as Pastor Appreciation Day (for 2019, Pastor Appreciation Day is October 13th).  This provides many church congregations the opportunity to show their appreciation to their pastors with financial gifts such as cash, often known as “love offerings.” Should the pastors treat these benefits as nontaxable gifts or taxable compensation?

The answer depends on the donor’s intent. If a love offering is made to compensate a pastor for services previously performed, then it is taxable. If the love offering can be characterized as detached and disinterested generosity to show affection, respect, admiration, or charity, then it is non-taxable.

To properly handle love offerings, and to protect pastors who serve them, church congregations must recognize that the love offerings given to the pastors may constitute taxable income. Some of the factors that the IRS could look at include:

• Donors’ intent in providing love offerings. If the objective intent is to compensate for services, the offerings are taxable. For example, a church’s founding pastor received no salary but introduced a blue envelope system for donations by members. The pastor told the church members that they could donate to him in these blue envelopes, but they would not get a tax deduction for those donations. All of the blue envelopes were given to the pastor unopened. The contributions made in the blue envelopes were not gifts, but were rather — from an objective perspective — meant to compensate the pastor for his service, and thus could be taxable.
• The pastor (or other church authorities) requested the personal donations. This could be a factor in determining whether it is a gift out of affection and generosity or merely a form of compensation.
• The donations were part of a routinized structured program and given by individual church members or the congregation as a whole. In the blue envelope example above, donations are not occasional, spontaneous gifts given by the church members after inspiring sermons. It is rather a method to transfer cash from church members to the pastors and, thus, is hard to distinguish from compensation.
• The size of the donations. If the “love offerings” received by the pastor far exceed other compensation received from the church, the love offerings could be considered income rather than gifts.

In short, whether love offerings are taxable is not a simple answer. In many cases, a one-time gift for special occasions like birthday, Christmas, or anniversaries are non-taxable to the pastors. In other cases, it would depend on the facts and circumstances surrounding the gift. Call us if you would like to discuss how to handle a love offering.

Written by Christina Li, CPA