October is Pastor Appreciation Month. I have received multiple calls asking about the tax treatment of pastor appreciation gifts. I attempt to simplify things as much as possible, even when something has layers of complexity. So if your situation is beyond the following simple, straightforward explanations, always ask more questions.
If a person walks up to a pastor and gives him cash, a gift card, or any other type of gift, it is nontaxable. The individual gave the gift directly to the pastor and not through the church. (In other words, the donor controlled the funds and the direction of the gift too, so it’s nontaxable.)
When a church announces it will take an offering for pastor appreciation and individuals give toward the offering, their gifts are tax-deductible, because the church controls the funds and the direction of the gift. The individual gifts can and should be receipted individually, but the gift as a whole will be given as one distribution from the church to the pastor.
That offering is, however, taxable to the pastor. A distribution, such as a pastor appreciation gift, that is technically from an employer to an employee will be treated as taxable compensation.
Michael Nolan is CFO/treasurer and director of strategic ministry growth for the GARBC.