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August 27, 2013

Q&A: Our Pastor Died—Can We Financially Help the Spouse?

Be aware of how the IRS views aid to employees' family members.


Q: A pastor passes away. The church wants to give the widow a small amount of monthly income for the remainder of the year. How is this gift treated from a tax standpoint?

A: It is best to treat this as taxable income in recognition of the pastor's services. Churches cannot make nontaxable "gifts" to persons, although they can distribute funds for charitable or benevolent purposes (it is unlikely that a pastor's spouse would qualify for this unless the spouse is destitute).

I provide specific guidance on employer-provided relief to employees and family members of employees on pages 407 and 408 of the 2013 Church & Clergy Tax Guide. This guidance includes the specific criteria that must be met in order for the IRS to consider assistance to be benevolence, rather than taxable income.

Richard R. Hammar is an attorney, CPA, and author specializing in legal and tax issues for churches and clergy. He is a graduate of Harvard Law School, and attended Harvard Divinity School. He is the author of several books, including Pastor, Church & Law, the annual Church and Clergy Tax Guide, Reducing the Risk, the biannual Compensation Handbook for Church Staff and the Essential Guide to Copyright Law for Churches, all available at YourChurchResources.com.

He also is senior editor of Church Law & Tax Report, a bimonthly newsletter reviewing significant legal and tax developments for churches and clergy, and Church Finance Today, a monthly newsletter for church treasurers.

Related Tags: benevolence, compensation, IRS, pastors, taxes


Bill G: I would like to take a gander at your qustoien. It is tough being treated the same. Some won't/don't want to. They want their pastor on a pedestal. On the other hand I have known pastors who take pride in their people being earthy around them. I find that offensive and showing a lack of respect (for me or anyone for that matter). I think one of the things you need to do is find those who have some of the same things in common like eating out or watching movies or going to ball games. My wife and almost always eat out on Sunday and have found a family or two who are of the same mind. We almost always have a standing date and enjoy the time together. That is just one example.

I would love to know what options the church has to provide for a pastor's wife in the event of his death? Can they continue to pay her for his service? Can they purchase life insurance on him, and list her as a beneficiary, and if so, are the premiums taxable income to the pastor? Can they allow her to live in the parsonage for her lifetime, and is this taxable income? What other options are available for a small church that can only afford the pastor's salary and not much benefits financially? Thanks!

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