Benevolence fund definition
/What is a Benevolence Fund?
A benevolence fund is used by a church to support those in the local community who are in need. Because the church is deciding who receives funds, rather than donors, contributions to this fund are tax-deductible for donors. For example, a member of a church congregation is battling cancer, so others in the congregation want to funnel donations through the church to pay this person’s medical bills. These are classified as pass-through donations, because the church is not given control over how the donations are to be directed. According to the IRS, pass-through donations are not tax-deductible for donors. By instead directing the donations into a benevolence fund, the church retains control over how the funds are directed, which makes the donations tax-deductible.
Benevolence Fund Operational Requirements
To operate a benevolence fund, a church should have the following administrative details in place:
Define purpose. State exactly what types of local needs the fund will provide assistance for, such as food and paying for utilities.
Define lack of resources. Define the financial circumstances of the recipient that will trigger a payment from the fund, such as being unemployed or below a certain income level. The required threshold levels should be clearly stated.
Approval process. Define who must approve expenditures from the fund, such as a designated committee or the minister. This may also include a formal application for assistance, which is useful for proving that a standard process is being followed.
Check payments. Where possible, make checks payable to the suppliers to whom the designated person owes money, rather than directly to him or her; doing so ensures that funds are not mis-spent.
Documentation. Maintain records for what was spent and to whom it was given. The documentation should include any applications for assistance that were submitted by funding recipients.
Benevolence payments made to an employee of the church are taxable to the employee as wages, and so should also have payroll taxes withheld from them. The same rule applies to any expenses paid on behalf of an employee.