Every year, my church used to do a special offering in December as a Christmas gift for our senior pastor. As they said, why should he get a bunch of $10 gifts that he doesn’t even need when we can pool our resources so that he can buy something bigger that he really does want?

It’s a good approach for everyone involved, even the IRS. You see, just because you and I call something a gift doesn’t mean the IRS doesn’t see it as taxable income. In my example, the Christmas gift we raised for our pastor would indeed be considered taxable compensation for him. In most cases, Christmas gifts are taxable income for the pastor who receives them. 

Gifts From The Church Organization

If your church as an organization gives you a Christmas gift or bonus, it is almost always a taxable gift. When an employer gives an employee something, it is considered additional salary. There are a few exceptions, such as the de minimis rule where an employee can receive tax-free things that are too small to account for, such as the use of the copy machine for personal reasons once in a while or a free turkey at Thanksgiving. 

However, a Christmas gift of cash, gift cards, or even a new car (you wish!) is considered compensation and taxed as such. Just about the only time a church can give their pastor a cash gift without it being taxable is when the pastor retires and there are still a lot of restrictions related to that.

Gifts From Church Members

It’s a little bit different when you receive a gift from a church member directly and it doesn’t pass through the organization of the church. When that happens, both the intent and the circumstances surrounding the gift have to be considered. Why did the person give the gift? And why did they give it to you specifically?

Characteristics Of A Gift

The IRS has much stricter definitions for what constitutes a gift than most of us do. For them, a gift must:

• Come from a detached and disinterested generosity
• Be made out of affection, respect, admiration, charity or like impulses

Something is not a gift if:

• It is given primarily from the constraining force of any moral or legal duty
• It is received in a regular and structured manner
• There is an anticipated benefit of an economic nature
• It is given for services rendered even if the giver receives no economic benefit
  
  

How Taxability Is Determined

That last point is a big one for pastors. Most gifts are given to pastors because of the pastoral relationship. Ask yourself, Would I be getting this gift if I wasn’t the pastor? If the answer is no, then it is taxable. 

Your mother’s Christmas gift is not taxable because she would give it to you whether or not you pastored her church. Most church members, though, would not be giving you gifts if you weren’t the pastor. 

One of our staff pastors is in my small group. If I gave each small group member a $50 Amazon card, then that would not be taxable to him because it would be based on his membership in my group, not his pastoral role. However, if I gave only him a gift card, then it would be construed as based on the pastoral relationship and considered taxable income in the eyes of the IRS. 

Any gift that is part of a collection organized by church leaders is taxable. Also, any gift made because the giver doesn’t think the pastor gets paid enough or to keep him or her from leaving the church is taxable as additional compensation. 

Basically, the safest thing is to assume that all the gifts you receive are considered taxable compensation by the IRS. If you have a strong argument for why something should not be treated as income, feel free to act accordingly. However, many generous church members have been overruled in the US tax court.