Another accountant attended an IRS seminar for nonprofits and the subject of giving thank you gifts to volunteers came up.
Here’s an excerpt:
Volunteer Gifts vs. Compensation
The IRS employees explained that volunteers are people who perform work and receive no compensation for it, so when they are compensated, the organization runs the risk of giving them taxable income.
Non-cash gifts – a turkey, a coffee cup – pose no problems, but gift certificates and cash are taxable income to the recipient. The IRS noted that the FICA (Social Security and Medicare tax) threshold is $100 a year, meaning if volunteers are compensated with, say, $250 gift certificates, they will owe FICA tax of 5.65% and the organization will owe 7.65%!
So a nonprofit can say ‘thank you’ to its volunteers with cash or a gift card, but the IRS expects the nonprofit to provide the volunteer with a W-2 the following January showing that they received taxable income.
That’s pretty crazy!
Keep Volunteer Appreciation Simple
With this crazy requirement from the IRS, it might be wise to to just avoid cash and gift cards unless they are quite small (less than $100). Nothing says “thank you” quite like making a volunteer’s tax return more difficult!
Or you can avoid the whole problem by choosing a different means of expressing appreciation, i.e. non-cash gifts. Thinks like a book, a mug, flowers, chocolate, etc. make great thank you gifts.
Add Paying Workers book
Carol Topp, CPA
“…FICA threshold is $100 a year…” Does this mean if the gift card is less than $100 per year you do not have to report it?
No, it’s not that simple. All income is reported as income unless specifically excluded by the US tax code.
The blog post was aimed at church employees given a cash gift. The cash gift becomes “cloudy.” Was it really a gift or income? It’s hard for the IRS to tell, so they claim that it’s taxable income.
Most homeschool organizations do not have paid employees. They have volunteers and it’s very common to thank volunteers with gifts of appreciation, including gift cards. These are clearly gifts (usually) and not taxable income to the volunteer.
Thank you!