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Our pastor retired and the name of the church he founded was also retired. The year prior to his retirement, the budget committee designated a lump sum retirement gift to appreciate his 30 years of sacrifice for God and His church. Is this appreciation gift from the church taxable? That is, should it be included in his box of the W2? Reading various materials from the IRS, the main issue seems to revolve around the nature of the gift. Must we "prove" that the money was an "appreciation gift" and not compensative for services rendered?


Zondervan's Church and Nonprofit Tax Guide states that the "payment of the love offering is taxable and subject to payroll tax treatment...."  There are three exceptions noted but these don't seem to fit the situation.  It would be advisable for you to speak with a tax advisor to receive definitive word on this question.

Thank you...I ordered a copy of the Zondervan tax guide and will look it over. And I'm trying to find a tax advisor in my area who would be familiar with this. Thank you for your help!

In future, it would be avisable to give all or part of such a gift in a later year, if the person is retiring, in order to reduce the impact on income taxes payable. 

I have an IRS tax question.  Using Turbo Tax, my housing allowance is a "credit" ammount appearing on line 53.  Last year a tax preparer put it under  "income," line 21 as negative income ("less housing allowance").  Which is correct?



As to the "retirement gift" to the pastor, I'm quite certain (this from a lawyers perspective, not an accountant's perspective) that the IRS would regard the gift as taxable income.  The IRS would analogize to tips to waiters (also taxable) or bonuses to employees (also taxable), insisting that the amount "given" to the pastor in this case was related to (and therefor because of) the pastor's service, as would be a waiter's tip or an employee's bonus.  In a sense, the IRS would be saying this was not really a gift but money given in return for service, even if the compensation had not been negotiated as compensation (neither are tips or some bonuses).

I better case (that it was not taxable) could be made if members of the congregation aggregately contributed to a gift to the pastor's family, even if that gift was coordinated by the church.

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