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Nonprofits Beware: Avoid Gift Cards When Recognizing Volunteers

Employment and Labor Legal Update

If you are involved in a nonprofit, you probably understand the incredible value of volunteers. After all, most nonprofits rely on hundreds of volunteer hours to not just achieve their missions but to survive.

The IRS understands this and tax laws facilitate it – but only to a point. The challenge for nonprofits is showing appreciation without creating taxable income for volunteers and/or turning them into employees who must be paid wages and benefits.

The key is using tax-free benefits to keep the items minimal in value or, as the IRS terms it, a “de minimis fringe” benefit. Many benefits fall into this category, including:

  • Free refreshments at a volunteer reception
  • Limited discounts
  • Limited parking and transportation benefits
  • Meals and lodging at nonprofit premises for the nonprofit’s convenience
  • No additional cost services
  • Certain education benefits
  • Insurance coverage

To remain tax-free, the value of all of these items must be analyzed and controlled. Determining the amount that will avoid creating a taxable event can be complicated, but one rule is simple: An appreciation gift of cash or a cash equivalent, such as a $25 gift card, is always taxable in the view of the IRS – regardless of the amount. The IRS sees it as a taxable event that the nonprofit and volunteer must report.

So if you’re looking for ways to reward those who give their time to your nonprofit, host a reception, send a bouquet of flowers, or give a basket of fruit – your volunteers (and your accountant) will thank you.

Lauri Cleary is a trial attorney who helps businesses, employers, and individuals resolve disputes in and out of the courtroom throughout Maryland, DC, and Virginia. For more information on nonprofits and gift giving, contact her at 301-657-0176 or lecleary@lerchearly.com.

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This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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