Q: I read with interest your answer to the question, “Who Gets the Honorarium.” Fortunately, its recommendation that all honoraria belong to the organization matches our small organization’s policy. Our CEO does accept occasional speaking engagements, and in a portion of these cases he is given a check – always less than $600 – made out to him personally. He has always endorsed such checks over to the organization, per our policy. But, what we all want to know is if these funds need to be reported as income on the CEO’s personal taxes. To be clear, he does not deposit the funds in his account. As stated above, the original check is endorsed to, and deposited by, the organization. Does he, or the organization, have a further responsibility for tracking and reporting this money? If it makes a difference, we are a church, exempt by the IRS ruling from producing an annual 990.
A: Honoraria payments are considered taxable income under IRS regulations. This means that if the check is made out to your CEO personally, he will have an income tax liability, whether or not he immediately endorses the check over to the organization and never takes possession of it. In addition, he may be required to pay self-employment tax on it as well, if these speeches occur outside of what is considered his regular employment obligations and he does them with any degree of frequency. This is true regardless of the amount of the check, or the fact that the ultimate recipient – your organization – is a church.
You note that the amounts of the honoraria haven’t exceeded $600. While organizations are only required to send a 1099 to their speakers and the IRS if payments exceed $600, the lack of a 1099 does not relieve the burden of reporting such income. Besides, some organizations report all payments, regardless of how small, just to be as open as possible with the community. Does your CEO want to take a chance that record of those payments wasn’t sent in to the IRS?
If your CEO wants to transfer a payment made to him to your organization – or your policy demands it – he must accept the cash or check and then donate it back. With the changes in the tax law that raise the standard deduction, most will not be able to deduct such donations. This makes the idea of your CEO accepting a check made out to him personally and endorsing that check over to the organization significantly less attractive. To protect your CEO or any others speaking on your organization’s behalf, you may want your policy to clearly state that all honoraria be made out to the organization directly, and that no payments made out to an individual may be accepted.