Nonprofit Resources
Important Considerations for Church Benevolence Programs
Many churches have benevolence programs to assist members and others in the community during times of emergency or financial crisis. Situations of need can — and often do — arise unexpectedly. Having a written benevolence policy in place can help your church respond quickly and graciously. It also can protect the tax-exempt status of your church and the deductibility of donations made to it, and shield fund recipients from mistaken taxation.
In addition, a carefully crafted benevolence policy can help prevent misunderstandings about the program’s purpose and assist the individuals who disburse funds in making consistent, accountable decisions in line with established guidelines. If your benevolence program or disbursements are ever challenged in an audit*, a written policy can show that the program is consistent with your church’s exempt purpose.
This article provides benevolence program best practices and simple processes for demonstrating and documenting recipients’ needs. It also discusses how to make benevolence disbursements and outlines additional considerations for benevolence payments made to employees and designated individuals.
Benevolence Program Best Practices
We recommend the following best practices for benevolence programs:
- Create and implement a written policy.
- Define what types of contributions will be allowed. To be tax-deductible, contributions must be made to the program, not to a specific individual or family.
- Appoint a committee or specific personnel to review and approve requests. Avoid giving one person control over fund distribution without adequate oversight and accountability measures.
- Decide what types of need will receive support. Typically, assistance is allowed for basic needs such as shelter, food, clothing, and medical expenses.
- Develop adequate criteria for determining individual need.
- Document the need and obtain (and document) external verification before disbursing larger amounts. (More on this below.)
- Include reasonable limits per person during a specified period. The tax law does not require limits, but larger amounts and longer-term assistance require more investigation and consideration than can be addressed in a policy for routine assistance.
- Make disbursements from a general fund or a benevolence fund, rather than from the collection plate or other sources.
- Pay assistance (rent, mortgage, utilities, etc.) directly to the service provider, rather than the individual.
- Always keep a written record of all funds disbursed.
We examine some of these best practices in further detail below.
Determining Individual Need
The amount of data you should gather for a needs assessment depends on the type of request. For example, if short-term assistance is needed during a disaster, it may be sufficient to view the disaster and then confirm that the individuals seeking assistance live in the affected area.
We recommend communicating with other entities that provide benevolence in your geographical area so you can compare whether the same individuals are seeking and obtaining assistance from the other entities. This will provide insight into the extent of support being provided and avoid instances of people exploiting the system to obtain benevolence from multiple sources.
For larger disbursements or longer-term assistance, we recommend that you do a financial assessment by having individuals complete an application. Information you should consider requesting includes, but is not limited to, the following:
- Employment status
- Dependents
- Church involvement
- References (inside or outside the church, or both)
- Present income and expenses
- Assets owned
- Other sources of support or benevolence
The ECFA offers subscribers and accredited organizations a sample application here. (Depending on your browser settings, the document may download automatically.)
In addition, external verification is recommended for larger disbursements. This involves verifying the information provided by the applicant with another source, such as the applicant’s employer or references, or another church member.
Documenting Individual Need
Keep adequate records and case histories on each aid recipient, including:
- Name and address of recipient
- Amount distributed
- The purpose for which the aid was given
- How the recipient was selected
- Any relationship between the recipient and other members, officers, trustees, or directors of the church
Note that you do not need to issue a Form 1099-NEC, Nonemployee Compensation, to the benevolence recipient for benevolence funds disbursements over $600. This is because benevolence is a gift to the recipient, rather than a payment for services. However, your church may need to provide a Form 1099-NEC or Form 1099-MISC, Miscellaneous Information, to the third party you send the funds to. For instance, if your church sends a benevolence payment to a landlord on behalf of a person who is in need or distress, you may need to provide the landlord with a Form 1099, if the landlord is the type of entity that should receive a 1099. You should request a Form W-9, Request for Taxpayer Identification Number and Certification, from the third parties you send benevolence payments to so you can determine whether there is a tax-reporting requirement.
Making Disbursements
It may be tempting to just take cash out of the offering plate or bookstore cash register to help someone in need. There are two issues with this, however. First, it does not provide a record of the assistance. Funds should never be disbursed without supporting documentation and a written record of the transaction, as described above.
Secondly, it does not provide adequate accountability, creating a significant opportunity for abuse. As Christians, we are trusting and loving by nature, but even a trusted employee under significant pressure — pressure others might not be aware of — may rationalize an inappropriate disbursement. Limiting the opportunity for misuse will protect your church as well as your employees and volunteers.
Further Considerations
We are sometimes asked if it is acceptable for a church to receive benevolence donations that are designated for a specific individual or family. Gifts that the donor requires to be used for a specific individual or family will not be tax-deductible.
Your church may agree to collect funds specifically designated for one or more individuals. If you do, it is important to clearly communicate to the donors that their payment is a personal gift and will not be handled as a tax-deductible contribution.
There may also be instances where a donor recommends an individual in need to the benevolence committee. In this situation, the committee, not the donor, should determine what amount, if any, will be given to the individual. The donor should understand that the benevolence committee will exercise control and discretion over the donation, and that the recommended recipient will undergo the same approval process as other individuals.
Benevolence program disbursements to employees should be considered taxable compensation to the employees. Therefore, the amount of benevolence assistance an employee receives should be reflected in their W-2. However, there is a small carve-out exception in the case of disaster relief payments made to employees, as well as hardship assistance from an employer-sponsored assistance program. See IRS Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations, for the requirements of an employer-sponsored assistance program. These programs can become complex, and you should seek expert tax guidance if this is something your organization is considering.
A Framework for Faithful Support
When emergencies and financial hardships arise, the loving Christian community wants to help. A well-documented benevolence program process can help ensure that assistance is provided in a way that does not jeopardize your church’s tax-exempt status or the witness and integrity of your ministry.
This article has been updated.
Chris Purnell
Chris serves as Partner and Tax Counsel at CapinCrouse. A licensed attorney, he advises exempt organizations of all sizes on a wide range of issues, including tax and employee benefit related matters, representation before state and federal tax authorities, and assistance with firm audit* or advisory engagements to formulate advice and counsel on important operating and tax issues. Chris also assists clients with general tax issues, unrelated business income, charitable solicitation, and missionary employment structures. Prior to joining CapinCrouse in 2019, Chris served as the Executive Director of the Neighborhood Christian Legal Clinic, the nation’s largest Christian legal aid organization. Note: Although licensed to practice law in Indiana, Chris’s services through CapinCrouse do not involve the practice of law and consequently do not result in the creation of an attorney-client relationship.
2 Comments
In my research, it clearly states that benevolence given to employee or employees’ family members are taxable. Is it fair to say that the exception is when there is a disaster or the employee is experiencing emergency hardship?
Hi Priscilla,
There is a narrow exception for “qualified disaster relief payments” under IRC § 139. A qualified disaster relief payment is a payment made to pay or reimburse reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a “qualified disaster” or expenses incurred for the repair or rehabilitation of a personal residence or the repair and replacement of its contents where the need for such repair, rehabilitation, or replacement arises from the occurrence of a qualified disaster.
A qualified disaster is one of the following four events:
1. A disaster resulting from terroristic or military action;
2. A federally declared disaster;
3. A disaster resulting from an accident involving a common carrier, or from any other event which is determined by the Secretary of the Treasury to be a catastrophic event; or
4. A disaster which is determined by an applicable Federal, State, local authority to warrant assistance from the Federal, State, or local government or agency (or instrumentality of such governmental body).
From this list, we can see that individual tragedies (such as an employee’s home being destroyed by fire or a serious medical emergency) are unlikely to be covered by this limited exception.
However, it may be possible for an employer to make a contribution to a fund established by another charitable organization for the specific purpose of providing relief to an individual employee or for an employer to create such a fund for the benefit of its employees’ future emergency needs. The key here would be that the fund be separately administered from the employer and applications for assistance be separately evaluated from the employer. This type of arrangement is described in IRS Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations. That publication is available at https://www.irs.gov/pub/irs-pdf/p3833.pdf.