Reimbursing your staff's mileage... especially a minister's church business miles... is a great tax benefit as it is completely tax free... if done right.
Many churches and nonprofits will give their staff (especially ministers) a monthly "car allowance". That is fine as long as that "allowance" is included and reported in box 1 of the recipient's W-2... because... if it is a "set" amount each month and no "documentation" is required... it is taxable income.
One of my readers wisely "switched". Read her question and my response (you can add your comments as well =) ...
I frequently get this question in one form or another from clients and readers alike ...
"We brought someone in to help lead worship for a conference. He doesn’t have a ministry per say, but we wanted to bless him for his time and service. Would you classify the amount we gave him as a love gift and not taxable to him?"
My reply, "Because he performed a service for the love offering... the IRS will require you to send him a 1099... if you gave him $600 or more "collectively in a calendar year".
Client's reply, "Just to clarify, he didn’t require any payment/gift, but the spirit of it was we gave it response to his service. We also gave an offering to a preacher, and our gift was in response to his preaching at our church (although he too required no fee/offering). Will he need a 1099 since our gift was in response to his service?"
My reply, "You will be required to send 1099s to both of them (if love gifts were at least $600) as both "gifts" were for a "service" performed for the church.
NOTE: Regardless of the amount... these type of "gifts" are taxable income for recipient. Also note that churches/nonprofits are required to obtain a completed and signed W-9 from anyone that they give a gift or love offering to... if some kind of service was performed for the "gift" such as a guest minister or musician, etc. (EVEN if they do not expect to pay them much!) They can mark if they are an individual,
corporation, etc. (you are not required to process 1099s for corporations and nonprofits).
Click on the "Read More" below for more on the taxability of love gifts...
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