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.
To operate a benevolence fund, a church should have the following administrative details in place:
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Define purpose . State exactly what types of local needs the fund will provide assistance for, such as food and paying for utilities.
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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.
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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.
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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.
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Documentation . Maintain records for what was spent and to whom it was given.
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.
