Payroll - Taxable Love Offering

Fund Accounting, Accounts Payable, Accounts Receivable, Payroll

Payroll - Taxable Love Offering

Postby ngaham » Tue Aug 13, 2019 1:33 pm

Hey,
I am trying to figure out the best way to handle this. We had a member give $50.00 and designated it for our Youth Pastor. The check was deposited and I entered it into our love offering liability account to be paid. I thought I would be able to create a pay item in payroll to draw from this liability account so the $50 would be taxed, but that is not the case. I am looking for a recommendation on how to resolve this and have it reflected correctly on the Youth Pastor's check.
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Re: Payroll - Taxable Love Offering

Postby NeilZ » Tue Aug 13, 2019 6:20 pm

ngaham wrote:Hey,
I am trying to figure out the best way to handle this. We had a member give $50.00 and designated it for our Youth Pastor. The check was deposited and I entered it into our love offering liability account to be paid. I thought I would be able to create a pay item in payroll to draw from this liability account so the $50 would be taxed, but that is not the case. I am looking for a recommendation on how to resolve this and have it reflected correctly on the Youth Pastor's check.


Two things;

1. Because this was specifically designated for the Youth Pastor, you cannot give the donor any tax deduction as it will go to support a specific person.

2. I would not have used a liability, this is a special income item, and as such will also have a special expense account. Then you will need to create a new Payroll item in order to have it taxed.

You see this type of designation causes more problems than its worth. Since the donor cannot get a tax deduction for the donation it may be easier just to tell the donor that in future please just give the check to the person. You can then reference this webpage if they have questions:

https://www.ecfa.org/Content/CharitableGivingGiftsThatMayNotQualify

I'd then just write a check to the Youth Pastor from Accounts Payable, and reference the fact that the donor wanted to give the Youth Pastor $50.00, but made the check out to the church. The church is only being a conduit of the gift, but I would stipulate to the Youth Pastor that he declare the income on his income tax return.

Neil Zampella

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Re: Payroll - Taxable Love Offering

Postby wyandottefamily » Wed Oct 30, 2019 9:07 am

NeilZ wrote:I'd then just write a check to the Youth Pastor from Accounts Payable, and reference the fact that the donor wanted to give the Youth Pastor $50.00, but made the check out to the church. The church is only being a conduit of the gift, but I would stipulate to the Youth Pastor that he declare the income on his income tax return.


Just an fyi...

Once the church becomes the conduit, the church is then required to include this amount in box 1 of the Pastor's W-2. Simply telling the Pastor to declare it isn't acceptable. ANY amount distributed to an employee outside of an accountable expense reimbursement plan or allowable exclusion (housing allowance, retirement, healthcare, etc) is considered by the IRS to be compensation for services rendered.

If the Pastor is not an employee, then they would only need to be provided with a 1099 for it if they receive a total of over $600 for the year.

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Re: Payroll - Taxable Love Offering

Postby NeilZ » Wed Oct 30, 2019 9:30 am

wyandottefamily wrote:
NeilZ wrote:I'd then just write a check to the Youth Pastor from Accounts Payable, and reference the fact that the donor wanted to give the Youth Pastor $50.00, but made the check out to the church. The church is only being a conduit of the gift, but I would stipulate to the Youth Pastor that he declare the income on his income tax return.


Just an fyi...

Once the church becomes the conduit, the church is then required to include this amount in box 1 of the Pastor's W-2. Simply telling the Pastor to declare it isn't acceptable. ANY amount distributed to an employee outside of an accountable expense reimbursement plan or allowable exclusion (housing allowance, retirement, healthcare, etc) is considered by the IRS to be compensation for services rendered.

If the Pastor is not an employee, then they would only need to be provided with a 1099 for it if they receive a total of over $600 for the year.


While in most cases I would agree with you, in this SPECIFIC case my suggestion was due to the fact that the funds were entered in the wrong account in the first place. While the church could correct that by creating a new COA expense account, and updating the payroll module to add a new taxable income pay item, that's a lot of work for something that could easily be adjusted by issuing a check for $50.00 from Accounts Payable.

It this is going to be a regular donation from the donor, then I would suggest creating that separate set of accounts, and taxable income pay items.

Neil Zampella

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Re: Payroll - Taxable Love Offering

Postby wyandottefamily » Fri Nov 01, 2019 1:29 pm

Makes sense Neil, thanks for clarifying!

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