Hamill: When a Christmas gift is not taxable income

Question: I work at a small company that produces educational videos and printed materials. We have about 20 employees and are all served by an administrative assistant who makes our lives much easier. This Christmas, I organized a gift campaign for our assistant. We raised $1,825 that we presented to her before the holidays. People sent me money, and I then wrote a check from my personal account. She just asked me if she has to include this money on her 2025 taxes. I had not thought about that issue, but told her I did not think so. Can you help me out on this one? None of us thought she would have any tax issues.

Gifts are not included in the recipient’s income. A gift is one made from detached and disinterested generosity.

While not the determining factor, the tax law generally has a symmetry in tax result. If the recipient of funds has no income, the payer has no tax deduction.

If the Christmas gift had come directly from the company, I think that the assistant would have to report income.

It is difficult for an employer to argue that they made a gift to an employee. There is also the concern that the employer would try to claim a tax deduction.

You organized this payment in a way that bypassed the employer. Funds were given directly to you for the purpose of giving them to the assistant.

None of the employees who contributed to this gift would have any argument under the tax law justifying a deduction on their personal tax returns.

Similarly, the employer could not claim a deduction because it was not involved in the transfer and did not use its own funds.

I think it is safe to say that this is a gift directly from the employees to the assistant, and that the assistant has no income to report.

To make this more general, I believe I once answered a similar question where a congregation collected money to make a gift to the pastor.

In that question, I raised a concern that would not exist in your situation. Often, someone in a congregation takes charge of the gift, much like you did.

If the gifts are made directly to the person organizing the gift, the answer should be the same as in your situation.

But in a church setting, the gift campaign might be structured so that people contribute to the church and designate the gift for the pastor.

How the church treats such a campaign can affect the pastor’s tax result. If the gifts are included on an annual giving statement, the payer will claim a charitable contribution.

This is proper only if the church has control over the use of the funds. If that is so, the pastor has additional income from the employer church.

If the church accepts the gifts subject to the designation, it will need to exclude the gift from the annual giving statement to support a no-tax result for the pastor.

In effect, the church would need to argue that it was serving as a conduit for the members to voluntarily make a gift to the pastor.

I dealt with church gifts in a column many years ago. I did so because I have had about a dozen questions on the issue from church treasurers over the years.

If a dozen church officials asked me that question, it implies that the use of the church as a conduit for gifts is fairly common. Not everyone asks me questions.

I think the right way to structure gifts to an employee of any organization is the way that you did it.

The employee in question is usually one who serves the needs of all the employees. An administrative assistant or a pastor is an example.

If a church wants to have a campaign to raise funds for a pastor’s gift, someone in the congregation should take charge and be the party to collect the funds.

That approach avoids placing the church in the middle, with a treasurer or bookkeeper forced to decide what number to place on annual giving statements.

If the goal is to avoid a tax problem for the employee, it is best to keep the employer out of the loop.

Jim Hamill is the director of tax practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.