IRS Rules Every Volunteer and Charity Should Know

Ever wondered why volunteers don’t get a paycheck, or how a charity can give a small stipend without breaking tax laws? The IRS has clear rules that keep everything above board. Below you’ll find the most common pitfalls and the easy ways to stay on the right side of the tax code.

Stipends vs. Wages – Where the Line Is Drawn

If a nonprofit offers a volunteer a cash allowance, it can quickly turn into taxable wages. The IRS says a stipend is okay only when it covers out‑of‑pocket expenses like travel, meals, or supplies. Anything that looks like regular pay—fixed amounts, hourly rates, or bonuses—counts as wages and must be reported on a Form W‑2.

To keep it safe, write a simple policy that lists reimbursable items, requires receipts, and caps the amount at the actual cost incurred. When you do that, volunteers keep the money tax‑free, and the organization avoids payroll taxes.

Charitable Contributions and Tax Deductions

Donors love to claim a deduction, but the IRS has strict criteria. The charity must be recognized as a 501(c)(3) organization, and donors need a receipt for any contribution over $250. For cash gifts, a bank record or written acknowledgment works; for non‑cash items, the donor must describe the property and its fair market value.

Nonprofits should issue Form 1098‑C for contributions of $500 or more. This form confirms the charity’s status and helps donors fill out Schedule A correctly. Missing the form can delay or even block a deduction.

One common mistake is “grandfathering” in‑kind donations without an appraisal. If the donated item is worth more than $5,000, the IRS expects a qualified appraisal. Skipping this step can raise red flags and trigger an audit.

For volunteers who receive non‑cash benefits—like a free t‑shirt or a ticket to an event—the value is usually too low to be taxable. However, if the benefit is substantial (think a high‑value gadget), it could be considered compensation and should be reported.

Staying compliant doesn’t have to be a nightmare. Keep clear records, set straightforward policies, and check the IRS website regularly for updates. When in doubt, a quick call to a tax professional can save you hours of paperwork later.

Bottom line: a small stipend for actual expenses is fine, but anything that looks like a salary triggers payroll rules. Accurate receipts, proper acknowledgment forms, and a solid reimbursement policy keep volunteers happy and the IRS satisfied.

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