Nonprofit Resources
Important Considerations for Church Benevolence Programs
Many churches have benevolence programs to help 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 helps churches respond quickly and graciously while protecting their tax-exempt status and the deductibility of donations, as well as shielding benevolence recipients from unintended tax consequences.
A carefully crafted benevolence policy also helps prevent misunderstandings about the program’s purpose and assists those responsible for disbursing funds in making consistent, accountable decisions aligned with established guidelines. If a benevolence program or its disbursements are ever challenged in an audit*, a written policy can demonstrate that the program is consistent with the church’s exempt purpose.
This article answers common questions about church benevolence programs, including:
- Why does a church need a written benevolence policy?
- How should churches determine and document individual financial need?
- How should churches make disbursements from a benevolence policy?
- Are benevolence donations tax-deductible?
- Can churches provide benevolence assistance to employees or individuals designated by a donor?
You’ll learn best practices for determining, documenting, and disbursing benevolence assistance.
What Are Best Practices for Church Benevolence Programs?
A church benevolence program should be guided by a written policy, administered with accountability, and structured to provide assistance based on documented financial need. Following established best practices helps ensure compliance with tax law, promotes consistency, and safeguards the church’s integrity.
We recommend the following best practices for benevolence programs:
- Create and implement a written benevolence 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. This means the church must retain full control and discretion over how funds are distributed.
- Appoint a committee or authorized personnel to review and approve requests. Avoid giving one individual sole authority over fund distribution without adequate oversight and accountability measures.
- Determine what types of need will receive support. Typically, benevolence assistance is allowed for basic needs such as housing, food, clothing, and medical expenses.
- Establish adequate criteria for determining individual need.
- Document the need and obtain and document external verification before disbursing larger amounts. (More on this below.)
- Set reasonable limits per person within a specified period. While limits are not required by tax law, larger amounts and longer-term assistance require more investigation and consideration than can be addressed in a policy for routine assistance.
- Disburse funds from a general or designated benevolence fund. Avoid disbursing funds from the collection plate or other sources.
- Pay service providers directly. Assistance such as rent, mortgage, and utilities should be paid directly to the service provider, rather than the individual.
- Maintain written records of all funds disbursed.
We discuss several of these best practices in greater detail below.
How Should a Church Determine Individual Need for Benevolence?
The level of information churches should gather to assess need depends on the nature and duration of the assistance request. Short-term, emergency assistance often requires less documentation than larger or ongoing benevolence support.
For example, if short-term assistance is needed during a disaster, it may be sufficient to confirm the occurrence of the disaster and verify that the individuals seeking assistance live in the affected area.
We recommend that churches communicate with other benevolence providers in their geographical area. This can help determine whether individuals are seeking and receiving assistance from multiple sources and provide insight regarding the overall level of support being provided.
For larger disbursements or longer-term assistance, churches should consider conducting a more detailed financial assessment by having individuals complete a benevolence application. Information to consider requesting includes, but is not limited to:
- Employment status
- Dependents
- Church involvement
- References (inside or outside the church, or both)
- Current income and expenses
- Assets owned
- Other sources of support or benevolence
The ECFA offers subscribers and accredited organizations a sample benevolence application at ecfa.org.
For larger benevolence requests, external verification is also recommended. This involves confirming the information provided by the applicant with another source, such as the applicant’s employer, references, or another church member.
What Documentation Is Required for Church Benevolence Assistance?
Churches should maintain adequate records and case histories for each benevolence recipient. This should include:
- Name and address of the recipient
- Amount of assistance provided
- Purpose for which the assistance was provided
- How the recipient was selected
- Any relationship between the recipient and church members, officers, trustees, or directors
Churches 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, churches may need to provide a Form 1099-NEC or Form 1099-MISC, Miscellaneous Information, to the third party to whom they send funds.
For instance, if a church sends a benevolence payment to a landlord on behalf of a person who is in need or distress, it may need to provide the landlord with a Form 1099 if the landlord is the type of entity that should receive a 1099. Churches should request a Form W-9, Request for Taxpayer Identification Number and Certification, from any third parties receiving benevolence payments to determine whether a tax-reporting requirement applies.
How Should Churches Make Benevolence Disbursements?
Benevolence assistance should never be distributed without proper documentation and accountability. While it may be tempting to provide immediate help by using cash from an offering plate, a bookstore cash register, or another source, doing so presents two significant issues.
First, informal cash disbursements fail to create a written record of the assistance provided. Funds should never be disbursed without supporting documentation and a written record of the transaction, as described above.
Second, 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 opportunities for misuse will protect the church, as well as its employees and volunteers.
What Additional Tax and Compliance Issues Should Churches Consider?
We are sometimes asked whether it is acceptable for churches to receive benevolence donations 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.
While a church may agree to collect funds specifically designated for particular individuals, it should clearly communicate to donors that these funds are a personal gift and will not be a tax-deductible charitable 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 be evaluated using the same criteria as all other individuals.
Benevolence program disbursements made to an employee should be treated as taxable compensation and reported on the employee’s W-2. However, there is a small carve-out exception for disaster relief payments made to employees, as well as for 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 churches should seek expert tax guidance in these situations.
A Framework for Faithful Support
When emergencies and financial hardships arise, the loving Christian community wants to help. A well-documented benevolence program process enables churches to offer compassionate assistance in a way that does not jeopardize their tax-exempt status or the witness and integrity of their ministry.
If you have questions about benevolence programs or need guidance, please contact us.
This article has been updated.
Chris Purnell
Chris serves as Tax Counsel, Partner, CRI Advisors, LLC†, and Partner, CRI Capin Crouse Advisors, LLC†. A licensed attorney, Chris 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. 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.
4 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.
Re: 1099s
Is a church required to issue 1099s to vendors for rents paid on behalf of others through a benevolence program? To the church it’s a benevolent gift, even though it would have been rent if paid directly by the individual.
Hi Shawnda,
If a church is (1) making a payment directly to a third-party vendor, and (2) that third party is otherwise required to receive some sort of tax-reporting form for payments received, is the church required to provide that third-party vendor with a 1099? The answer is yes, the church should provide the third-party with a 1099 of some sort (most likely a 1099-MISC due to the prevalence of rental payments in this area). In order to make sure that this is done, a church may want to consider implementing some type of practice to determine whether the third party is required to receive a 1099.
How may a church want to do that? First, there are some scenarios (perhaps the majority) where it is readily apparent that the third party is not required to receive a 1099 (e.g., a utility company, corporations in general). However, there may be some arenas where it is up to question. In those instances, a church should request and obtain a Form W-9 to determine whether there is a 1099 reporting requirement for the payment to that third-party vendor.