Volunteers provide invaluable services to many nonprofits that often look for ways to reward those volunteers for their services. While certain perks such as free meals at meetings or events won’t create any tax problems for volunteers, more substantial gifts may need to be reported as income on a volunteer’s individual tax return.
Since most nonprofit volunteers qualify as employees for tax purposes since they are supervised by nonprofit staff, there are some benefits that are tax-free to volunteers:
Transportation and parking.
Many nonprofits, especially those in large urban areas, provide volunteers with free parking or reimburse them for parking expenses. Some nonprofits may also offer reimbursement to volunteers for mass transit transportation or ride sharing. The IRS places a cap on what is allowable for the benefits to remain tax-free to volunteers. For 2021, the monthly exclusion for qualified parking is $270 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270. Exceeding these caps potentially exposes a nonprofit to a 21% unrelated business income tax (UBIT).
Meals and lodging.
Meals that are provided by a nonprofit on its premises and for its convenience are not taxable for volunteers. If it is necessary for a nonprofit to provide volunteers with lodging so they can provide their volunteer services — for example, when working in a disaster area — then that housing benefit is not taxable.
Insurance coverage.
Injury is a common concern whenever volunteers do work for a nonprofit. Under California law a volunteer is not an “employee” for workers’ compensation purposes. This means that, by default, a nonprofit is not required to carry workers’ compensation insurance for its volunteers. However, a nonprofit’s board can make the decision to treat volunteers as employees for workers’ compensation purposes.
Education expenses.
Education expenses for volunteers are treated as tax-free as long as educational courses improve job skills, are required by the nonprofit for business purposes, or are required by law.
The Church Law Center of California advises religious and secular nonprofits on governance and risk management matters. To find out how we can assist your organization, call us today at (949) 892-1221 or reach out to us through our contact page.
