Designated Gifts

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Compensation & Payroll

Q:A donor wishes to designate a gift to a pastoral staff member. Can we do that and give the donor a charitable contribution receipt?

A: In order for a charitable contribution to be granted by the church for a contribution received, the contribution must be to, and for the use of, the church. This means that individuals must not personally benefit from a contribution made to the church.

So, for example, if Donor X writes a check to the church designating that the amount should be given to Pastor Y, the church is simply acting as an intermediary for a personal gift (not a donation) from Donor X to Pastor Y.

The IRS would view this no differently than putting money inside a birthday card. As a result, no contribution receipt should be issued to the donor and no income should be recorded for the pastor.

There is an exception to this general rule for “special occasion” gifts. A church may take up an offering for the pastor or church staff on special occasions, such as Christmas, pastor appreciation week, or birthdays, for example. On such “special occasions,” it is best for the church to announce that an offering for this special occasion will be taken and that charitable contribution receipts will be given to donors for this offering.

Under these circumstances, the church may issue a charitable contribution receipt to the donor and the amount of the gift should be added to the taxable compensation (W-2 or 1099-NEC) of the pastor or staff members who receive the special offering.

These percentages are not meant to be prescriptive, but comparing your church activity to these averages may be helpful or insightful.

Here are some additional ideas to consider as you develop and review your budget:

  • Seek counsel within your network of pastors who may be in a similar sized church or face similar socio-economic factors. Even if your church doesn’t fit precisely into the same model as another church, the comparison of where your church is on staffing levels, debt, facility expenses, number of individuals being served, etc., can be extremely valuable in helping you establish an appropriate budget for your church.
  • Consider your mission and vision for the church. Create a budget that reflects those priorities. For example, if the church has a vision to reach young families, more funds may be allocated to developing family-friendly environments, programs, and outreach opportunities.
  • Consult experienced members within your church for help. Find businessmen and -women within your church who create and execute budgets as part of their daily job. They will have expertise that will be invaluable to you.
  • Lastly, the IRS requires compensation provided to ministers to be reasonable. As you create your budget and review compensation packages, one way to determine reasonableness is to consult independent compensation surveys for comparison. Christianity Today has a great compensation tool for churches.  You can find that at churchsalary.com.

The Southern Baptist Convention also publishes a compensation survey that is freely available on their website.

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