Another Pastor Appreciation ?

[bsbrown]

The Deacons authorized taking up an offering for pastor appreciation day. Someone in the finance office during my absence wrote a manual paper check for the amount received and treated it as non payroll. I need to fix this, I believe, by creating a pastor appreciation item description and process the check through the payroll module. The offering was entered as a love offering in the contribution module and parked in the pass through account. Was this necessary? If not, what should have been done? Thanks

[NeilZ]

The Deacons authorized taking up an offering for pastor appreciation day. Someone in the finance office during my absence wrote a manual paper check for the amount received and treated it as non payroll. I need to fix this, I believe, by creating a pastor appreciation item description and process the check through the payroll module. The offering was entered as a love offering in the contribution module and parked in the pass through account. Was this necessary? If not, what should have been done? Thanks

I'm not a CPA, but I play one on TV. I'm also good at searching things on Google, and I found this from the Church Law and Tax site. If you're not subscribed to their newsletter, you should be. It got a LOT of good info.

Some church members give their pastor, or other church employee, a personal gift on special occasions such as a $20 bill enclosed with a birthday card. These personal gifts may be treated as nontaxable gifts by the pastor because they were not distributed by the employing church.

On the other hand, when a church collects a love offering, and informs the congregation that their contributions will be receipted by the church, this requires the individual offerings to be treated as a single distribution by the church. This triggers the rule requiring distributions by employers to their employees to be treated as taxable compensation.

If a church collects a one-time offering on a special occasion for a pastor, informs the congregation that their offerings will not be receipted by the church and are not tax-deductible, and asks persons who give checks to make their checks payable directly to the pastor, it is possible that these individual offerings could be treated as nontaxable gifts to the pastor. This is an aggressive position, however, that probably would be challenged by the IRS if the pastor were audited. And, this position becomes even less likely if more than one love offering is collected during the year, the amount of the love offerings is substantial, or the church was directly involved in promoting the offering.

So ... yes, this is something that needs to be adjusted.

1. Move the money from the liability (pass through) account to income. I wouldn't use the same income account as your offerings, but I'm assuming you have an income account for operations for miscellaneous income. I'd use that.

2. Run the check through payroll. Its going to be obvious that the pastor will owe some federal (and any local) income taxes. You may have to talk to the pastor about either 'biting the bullet" and expect to see a higher tax bill not covered with withholding, or allowing you to adjust the additional withholding on the next check to cover this gift. In either case, this needs to be reflected on the W-2 form for the year.

[bsbrown]

I have a copy of the info you directed me to at Church Law and Tax and subscribe to the newsletter. Also have the entire 2015 book. Very thick with a lot of good information. I too research a lot but run into problems when interpreting the info as it pertains to accounting. I knew this needed to be in payroll, just confused about the account to post the income to. Thanks for helping and by the way in addition to playing the role of CPA, you can also act as a comedian. You have many hats of which the users of this forum are fortunate. Thank you.