I am self employed (a minister). My church gave me a monetary gift. Do I report it?

[Opus 17]

I'm sorry, I disagree.  If you are an employee (or non-employee independent contractor) of the church, then anything of monetary value they give you is taxable income, and should be reported on your W-2 or 1099-MISC.  If not reported, you still need to include it as taxable income.

Church members can give you tax-free gifts, but the church cannot.

[Opus 17]

Also, you are probably not really self-employed.  Most pastors are common law employees and must receive a W-2, even though for income tax purposes you pay self-employment tax rather than being subjected to FICA withholding.  Being a common law employee has other implications; your church must follow wage and hour laws, laws on documenting pay and paychecks (this is a biggie in NY for example) and other things.

You will want to read this.
<a rel="nofollow" target="_blank" href="http://www.ecfa.org/PDF/2016-Preparing-Tax-Returns-For-Clergy.pdf">http://www.ecfa.org/PDF/2016-Prep...>

[Opus 17]

"Church members can give you tax-free gifts, but the church cannot."

Let me expand on this a bit.  Our church collects pastor gifts for "pastor appreciation month."  If the members make gifts of gift cards and money and checks made out to the pastor, and someone holds them all and gives them in one envelope, those are personal gifts even if the gift campaign was arranged by the staff.  But if the money is deposited in the church account and issued to the pastor as a church check, it's taxable compensation.

[cove1010texas]

May I return the check and have them issue cash or gift cards?

[Opus 17]

No, at least, not practically.  Firstly, the church can't give you cash or gift cards either, it would still have to be on your taxable income and reported on your W-2 or 1099-MISC.  Anything of monetary value that the church gives you is taxable income except for a parsonage, due to old common law exceptions.  

Secondly, if these were gifts from church members and you wanted to return the check to the church, have the church send the money back to the members, and have the members re-give the gifts to you personally--you can't easily do that because it is now after January 1.  If you did that before January 1, the church could have adjusted your W-2 or 1099-MISC to reflect the salary give-back and only report your net salary.  But because the money was paid in 2016 and would be returned (if you did it) in 2017, your 2016 tax documents must reflect what actually happened in 2016.  You would report and pay tax on the income in 2016, then you could take a deduction for the repayment in 2017.  But unless the amount is more than $3000, the deduction is not very effective and your actual benefit in 2017 would be much less than the tax you would owe in 2016.  If the amount of salary repayment was more than $3000, the income tax picture would be a wash (pay income tax in 2016 and get the same net deduction in 2017) but you would still pay self-employment tax on the amount in 2016 and that won't come back in 2017, due to how the repayment deduction is handled on the tax form.

If these are gifts from church members, you can do it tax free next year, but I think you are stuck this year.  And your treasurer needs some training.

[TomD8]

Generally speaking, gifts are not taxable to the recipient, nor does the recipient have to report them (unless, in some instances, they are from a foreign source).  [But see Opus 17's correct comments re: gifts to clergy]

[Opus 17]

Employer can't give a non-taxable gift.

[TomD8]

@Opus 17 -- Muchas gracias.

[Opus 17]

It's not specific to clergy either. My ex-wife works for a grocery store chain that provides employees with gifts cards to buy flowers or food for funerals of close relatives. It's a nice little bereavement gesture, and it is duly added to the W-2 and the appropriate employment taxes are deducted. I had to research this when my church wanted to give a going-away gift to our previous pastor. Basically, any company can only give tax-free gifts if they have de minimis value (t-shirts, mugs, etc.) or if they are part of a longevity award program that applies to all employees with similar longevity. (Plaque at 5 years, clock at 10 years, etc.)

[Jtrain4]

Yes sir. I just read your responses to this question about pastor appreciation gifts. I'm a pastor and struggle with determining what to do with non-monetary gifts given to me in the manner you described. My church encourages people to give cards, gift cards, and any kind of gift. The church leaders collect it all and then give it to me altogether. I also count cash and gift cards as income. I struggle with what to do with books, mugs and stuff like that, because I figure some people give me things because of things I've done for them, and I wonder if that disqualifies them from being considered De Minimis.

[Opus 17]

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@Jtrain4 wrote:

Yes sir. I just read your responses to this question about pastor appreciation gifts. I'm a pastor and struggle with determining what to do with non-monetary gifts given to me in the manner you described. My church encourages people to give cards, gift cards, and any kind of gift. The church leaders collect it all and then give it to me altogether. I also count cash and gift cards as income. I struggle with what to do with books, mugs and stuff like that, because I figure some people give me things because of things I've done for them, and I wonder if that disqualifies them from being considered De Minimis.

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It's going to be dependent on facts and circumstances.  Here are some further thoughts to what I wrote above.

Assuming your church pays you a fair salary, and the gifts are completely free will, and the church does not issue tax deductible receipts for the gifts, then it is a gift to you and not part of your church salary, even if someone collects all the money and gift cards to hand to you at one time.  However, if the church pays less than a fair salary, and they "encourage" extra gifts to boost your salary, then the church should probably collect the money directly and add it to your W-2.   If the church asks to collect free will gifts, it would be highly improper for them to issue tax deductible receipts, and the church would-have to make a decision to either treat the funds as contributions to the church that are used to pay a salary bonus, or the gifts are personal gifts between the church member and you in which case the church can play no role in determining the proper amount, issuing receipts, or keeping track of the gifts.

Assuming the money is a free will gift and not part of your salary, then you can decide whether to treat it as a gift or as self-employment income.  This would depend on whether it is a free will gift with no strings attached, or if it is associated with some specific service or benefit that you provide to the member.  Clearly the fee you collect for performing a wedding or funeral is self-employment income, even if it purports to be a gift.  But if you don't do anything extra for the gift except provide normal ministry services for which you are already adequately and fairly compensated, then I think you would be safe treating it as a non-taxable gift.  It depends on whether there is an exchange between you, or a free will gift with no strings. 

[Jtrain4]

Thank you so much for taking the time to explain to me things in such good detail. This has been so helpful. I'm new here, and I don't mean anything by this, I just don't know what this forum really is. Are you and the others who respond tax people preparers?

[Opus 17]

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@Jtrain4 wrote:

Thank you so much for taking the time to explain to me things in such good detail. This has been so helpful. I'm new here, and I don't mean anything by this, I just don't know what this forum really is. Are you and the others who respond tax people preparers?

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People with "expert" are Turbotax employees.  People with "Champ" next to their names are experienced volunteers who have been on the board for a while, have agreed to a code of conduct, and have been vetted by the moderators for being mostly accurate most of the time.   Anyone without a label can be anyone.  (Some are former champs who object to the code of conduct for whatever reason.)   Some are accountants, or tax preparers, even attorneys, some are just knowledgeable volunteers.  I am not a paid preparer, I do this as a hobby, and I tend to stick to areas that I most comfortable, which includes church and clergy taxes because I was in that area as my church's treasurer for several years. 

[Jtrain4]

Thanks again for your great help.