One of the blogs I read Nancy with Nonprofit Accounting Help, recently went to an IRS seminar for nonprofits.
The subject of giving thank you gifts to volunteers came up.
Here’s an excerpt:
Volunteer Gifts vs. Compensation
Joe Kroll and Ryan Johansen of IRS explained that volunteers are people who perform work and receive no compensation for it, so when they are suddenly 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. They noted that the FICA threshold is $100 a year, meaning if volunteers are compensated with, say, $250 gift certificates, they will owe FICA of 5.65% and the organization will owe 7.65% – and wouldn’t the organization want to pay both parts to avoid taking away from its gift?
So yes, you can say ‘thank you’ to your volunteers with cash, just provide them with a report the following January showing that they received taxable income. It’s probably a good idea to warn them that they will need to include the gift in their taxable income. I didn’t ask whether you’ll be issuing W-2 or a 1099 – consult your payroll service.
Keep Volunteer Appreciation Simple For Everyone
With the added layer of complexity that comes with cash or gift card thank you’s, it might be in every one’s best interest to just avoid cash and gift certificates. Nothing says “thank you” quite like making the volunteer’s tax return more difficult!
Alternatively, you can avoid the whole problem by choosing a different means of expressing appreciation, i.e. non-cash gifts. Here’s a site with some great ideas https://www.energizeinc.com/ideas/gift.html. How do you show your volunteers that you appreciate their time and effort?
Well, I don’t like the sound of THAT!! Taxable income for a gift card to appreciate a volunteer! Ugh!
But I thought I’d share this with you so you can consider how to thank your volunteers.
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.