The answer to this question depends on the circumstances.

• If the money was collected by the church and immediately given to the speaker/performer without counting or depositing it, no 1099 is needed. In this case, the audience members who contributed would not be eligible to use their gift as a charitable tax deduction.

• If the money was collected, counted and deposited before the church wrote a check to the speaker/performer, a 1099 is required. In this case, the audience members who contributed would be eligible to use their gift as a charitable tax deduction.

• If the speaker/performer was engaged by contract from the church and the church paid the appearance fee by check, a 1099 is required.

Somewhat surprisingly, the speaker/performer is responsible to account for the money received as taxable income received as the result of services rendered.  This is not the responsibility of the church, but that of the speaker/performer.

Yes, churches are required to withhold tax federal and state taxes for each employee, as well as Medicare and Social Security (employer share) for non-ordained staff. Ordained ministers are considered self-employed and typically pay all of their own social security and Medicare tax. Generally, churches are exempt from federal and state unemployment taxes.

Yes. But to be reasonably sure that the church can reimburse employees’ expenses incurred in the course of their duties, the church needs a written, accountable reimbursement policy. The policy should specify what expenses the church will reimburse and under which conditions. For example, if entertainment, amusement, or recreation expenses are directly related to an employee’s job, they can be reimbursable, but only if these types of expenses are included in the church’s reimbursement policy.

Failure to have a written, accountable reimbursement policy would require the church to include any amounts paid or reimbursed for business expenses as salary on an employee’s W-2. This would subject the employee to potential tax liabilities for the reimbursement.

Unfortunately, the answer is yes. Any payment to an employee is almost always taxable. 

The only circumstance in which a love offering would not be taxable is if a church member made the gift directly to the employee. In this case, the church was not involved in the transaction and the gift would not typically count as taxable income, so long as the gift amount is $15,000 or less. However, the donor would not be eligible to use their gift as a charitable tax deduction. 

The Clergy Housing Allowance Clarification Act of 2002 amended the tax code to limit the housing allowance (portion of compensation that is not taxable) for ministers who own (or rent) their home to the lesser of:

• The fair market rental value of the home fully furnished including utilities;
• The amount designated as housing;
• Or the amount actually spent on housing expenses.

We recommend you set your designated housing allowance slightly higher than you expect to spend to allow for any unplanned housing expenses. Use the formula below as a general “rule of thumb” to find a starting place:

Step 1: Appraised fair market value of house x 1.5% = Subtotal 1

Step 2: Subtotal 1 + average monthly utilities = Subtotal 2

Step 3: Subtotal 2 x 12 (months) = Designated Housing Allowance