For 7 years now, I have worked on staff at a church, and one of the most common questions we receive from people is for financial assistance. Many churches have a heart to help those in their churches and in their local communities who are in need, which is fantastic! However, what I have encountered in my time advising these churches is that most of them do no know the laws surrounding benevolence and how to administer a benevolence fund properly.
To help bring some clarity in this area, here are some guidelines to take you through understanding what benevolence is, its taxability, and how to disburse these funds with proper documentation.
Benevolence is any gift that is given to needy individuals or families. Now, this definition is pretty simple, and many of you may have already jumped to the next logical question. How do you define if a family or individual is "in need"?
In general a person "in need" would be someone who needs food, clothing, shelter, transportation, medical care and other types of assistance to the poor or destitute. The IRS also has Publication 3833 that has specific details for disaster relief that goes into more detail for these special circumstances that arise.
One of the main reasons it is important to determine if a gift qualifies as benevolence is because benevolence is deemed to be tax free to the recipient. However, in order for a donor to qualify for a charitable deduction on their tax return, contributions must be made to a Church benevolence fund and cannot specify the name of an individual. Benevolence gifts made directly by a donor to needy individuals are not tax deductible under any circumstance.
However, if a donor merely makes a suggestion about the beneficiary of a benevolent contribution, it may be deductible if the church exercises proper control over the benevolence fund. If there is a named person on the contribution, it must only be advisory in nature and the church must have full control over the funds to decide how they are used. Otherwise, earmarked benevolence gifts are generally not deductible.
As we just established, giving money to a church and trying to designate it for a specific individual is almost never a qualified tax deductible donation. However, it is fairly common for churches to have a member in need that they want to help and I commonly get the question "how can we help John Smith as a church?".
In the event your church wants to help a particular individual or family that has unusually high medical bills or other valid personal financial needs you should consider the following options.
Another common issue faced by churches is when an employee is in need and the church wants to help them. This is the point where churches often making the mistake of thinking that since the money given to the employee is "benevolence" that it is tax free to the employee.
While I wish this were true, payments of money to an employee, even for a documented benevolence item, are taxable to the employee and should be reported on their form W-2. There are some limited exceptions to this rule, which surround Federally Declared Disasters and the use of Employer-Sponsored Assistance Programs. You can read the specifics of this in Publication 3833.
Benevolence payments to non-employees are not reportable on Form 1099-MISC (or any other information form). Benevolence payments to employees are generally reportable on Form W-2.
Before making any benevolence payment, be sure to gather the following information in order to substantiate the benevolence gift properly. Generally, documentation should include:
For some other resources regarding benevolence, see the below articles.
BENEVOLENCE: THE RIGHT HELP GIVEN THE RIGHT WAY, by Frank Sommerville
