Deacons should be sensitive to tax implications associated with dispensing financial aid for the needy and other benevolences. Here are some resources to help get you started…
You need to understand if what you are giving an individual is benevolence or payment for services rendered. Merriam-Webster defines benevolence as “an act of kindness” or “a generous gift.” Helping members through an emergency relief fund is likely a benevolence if the IRS rules are followed.
WHAT IS CHURCH BENEVOLENCE?
Churches are benevolence ministries. While they have other responsibilities and financial obligations, such as maintenance and upkeep on their building and grounds, a large part of a church’s purpose is to serve others and dispense charity in times of individual need or economic crisis.
In the United States, churches are treated by the IRS as tax-exempt non-profit organizations. The IRS establishes rules for non-profits regarding the filing of tax forms when they give individuals money. Paying people for services rendered generally requires reporting and is considered taxable income, but giving individuals money to help them out in a time of need is an act of benevolence and may not be taxable because if it is considered a gift. A CPA explains:
If an individual is given money (more than $600) by a church as benevolence is he or she required to file Form 1099?
Form 1099-MISC is used to report Miscellaneous Income for each person to whom a business or charitable organization paid during the year at least $600 in rents, services, prizes and awards, and other income payments. A recipient does not file Form 1099.
Form 1099-MISC should only be prepared when payments are made in the course of a trade or business. Businessdictionary.com defines “course of business” as the daily or regular routine peculiar to a firm or trade, involving purchase, production, and sale of usual goods and/or services, and payment and receipt of money. Benevolence is defined as an act of kindness or generosity. When benevolence is given to meet the needs of individuals, it is considered a charitable program of the church, is not taxable, and does not need to be reported on a Form 1099-MISC.
If the benevolence is in return for services, it is taxable and needs to be reported on a Form 1099-MISC. Benevolence paid to employees is not taxable as long as it is not being used to disguise compensation. One-time gifts used to meet emergency financial needs of employees would generally qualify as benevolence and not be taxable (just as they would for members of the church or community who demonstrated emergency need).
You can read the reporting requirements on the IRS website about 1099-MISC, which says:
File Form 1099-MISC for each person to whom you have paid during the year:
– At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
At least $600 in:
– Services performed by someone who is not your employee.
– Prizes and awards.
– Other income payments.
– Medical and health care payments.
– Crop insurance proceeds.
– Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
– Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
– Payments to an attorney.
– Any fishing boat proceeds.
In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
I encourage you to read the following publications from the IRS. They lay out IRS expectations that will help guide your emergency relief program:
Publication 1828, Tax Guide for Churches and Religious Organizations – Provides tax guidance and responsibilities for churches. Makes clear the distinction between “churches” and “religious organizations” since “churches” have special tax rules that only apply to them.
Publication 526, Charitable Contributions – Explains how individuals can claim charitable deductions on their taxes, including deductions individuals can and cannot claim.
Publication 3833, Disaster Relief, Providing Assistance Through Charitable Organizations – Describes how members of the public can use charitable organizations to provide assistance to victims of disasters or other emergency hardship situations.
You can find more IRS resources by clicking here, Disaster Relief Resources for Charities and Contributors.