by Conrad Martin, Director of Finance
As tax season is upon us, it is important to be aware of two things a church does that may affect the taxable income for congregational employees/pastors — one taxable and one a pre-tax deduction.
- Love Gifts/ Offerings
Some churches give their pastor(s) a “love gift” or “love offering” in special appreciation for the many things they do for their congregation. These gifts come from either the pastor’s employing church or from individual members of the church. Sometimes these 
gifts come from a special offering taken by the congregation for their pastor. Sometimes an individual member will feel the need to show their appreciation personally in a financial way, sometimes even unbeknownst to the congregation. In almost every case, the IRS will view “love gifts” as compensation for services rendered and therefore taxable. If coming from the church as the employer, the church needs to either include the love gift in the calculation of the W-2 or issue a 1099-MISC to the pastor. If coming from an individual, the pastor needs to include the gift in their taxable income. If you need further clarification, consult your tax accountant.
- Section 125 Flex Plan
If your congregation offers a medical insurance plan to their employees and also charges them a portion of the cost for the premium, those employee premium costs may be deductible from the employees’ taxable income. If your congregation offers as part of their medical insurance plan a Health Savings Account (HSA), the employees may contribute personally into their HSA through payroll deductions and those payroll deductions may be deductible from the employees’ taxable income. The key is, the church needs to have a Section 125 Flexible Benefits Plan documented. Sometimes this is called a Cafeteria Plan. Whatever it is called, it must be documented. There are many companies that can write such a plan for your church, one of which is Everence. Contact your local Everence Stewardship Consultant for more information.
Any time you have questions about your church finances, contact Conrad Martin at the conference office and he will help direct you to the answer.
The opinions expressed in articles posted on Mosaic’s website are those of the author and may not reflect the official policy of Mosaic Conference. Mosaic is a large conference, crossing ethnicities, geographies, generations, theologies, and politics. Each person can only speak for themselves; no one can represent “the conference.” May God give us the grace to hear what the Spirit is speaking to us through people with whom we disagree and the humility and courage to love one another even when those disagreements can’t be bridged.