From time to time churches come to me to ask about the use of Benevolent Fund to help the needy.. Sometimes there are people in the church who want to help certain needy individuals. Sometimes the churches establishes such Fund to provide help when needed. There are important tax issues involved, since the donors would usually want tax deductible receipts.
Q: Is benevolence donation tax-deductible?
A: It depends on how it is set up and done. If I give the church $500 and specify that it is for XXX, and the church follows my order and give it to XXX, then it is a gift and not tax deductible. But if the church sets up a benevolent fund, and the church decides on how to use the funds to help people, and I give $500 to the benevolent fund without any specific designation, then the church can consider this donation and give me a tax deductible receipt. The key is the church alone controls on how the funds are used.
Q:Is benevolence payment taxable income? Should our church issue 1099 to recipient?
A: If it is a one time thing then it is a gift and no 1099-MISC is needed. But if you are doing this every month for several months then you need to issue 1099-NEC which is a new form for 2020.
Q. Any limitation on benevolence payment?
A. No. The church can consider the needs and make its decision. It should not be based on how much money it receives. The best way is to decide on an amount, and encourage the members to contribute into the Benevolent fund. The amount the church decides is unrelated to how much contribution is made by the members.
Q. How should church handle benevolence fund?
A. Some Chinese churches have this benevolent fund set up so they can respond to needs quickly. most Chinese churches do not have such a fund set up and when the need arises then they would make a special collection to help. it is always better to have a fund already set up and ready to go. The things that should be considered include:
1. Oversight and accountability: the Deacon Board or Church Council should have oversight responsibility for establishing policies regarding the raising and disbursing this fund. It should review the fund annually to make sure it adheres to policies.
2. On-going administration: where is such fund kept? Most churches would use the same bank that the church has the bank account. Some even put it in the same bank account with a Church’s General and building funds but they use sub-ledgers to segregate each fund. How often should the oversight committee be given an accounting of the fund? Is the church going to issue 1099 forms or not? If it is a one time assistance not over $600 then you do not need to issue any 1099. However, if it’s over $600 then 1099s forms have to be issued.
3. Source of funding: How do you raise the initial funding? The church could decide to move some funds from General Fund into this Fund to get it started. How do you replenish the fund? Members of the church can donate into the funds and get a deductible receipt as long as they do not designate to whom the funds should be given to.
4. Target of assistance: need to decide if only church members can receive assistance? how about the Christian community in general? How about the entire community in general?
5. Criteria for providing financial assistance: the fund should provide individuals or families during a time of hardship or crisis by temporarily assisting them with their basic needs. You probably do not want to provide assistance when people are in debt due to mismanagement of personal finances or addictions, business losses or other non-basic needs.
6. Application and approval process: How should people apply for assistance? Who needs to approve the giving of such funds. You can consider giving pastoral staff a certain limit to approve the disbursement of search funds. If the disbursement is over this limit then it needs to go to Church Council or the committee for approval.
Q. Do you have a Benevolent Fund Policy sample?
A. Here is one from the ECFA which you can use as a model.