Co-workers gift - taxable income?

"TheMightyAtlas" wrote

Non-taxable gift. At least the part from the co-workers.

Non-deductible gift.

Paul, please enlighten me. What do you mean by your last sentence?

Thanks in advance.

Sometimes there is some kind of matching by the employer. You can almost never receive a non-taxable "gift" from your employer. In this case there was no matching, though happily it has triggered the company to set up a fund for such circumstances, funded by the company, but administered by a committee of employees. I am pretty sure the payments from this fund will in fact be taxable income.

The general rule is gifts are not taxable to the receipient. There are numerous excepts to this rule, but none of them appear to apply here.

You are correct, but there would be no deduction even if there was a qualified organization involved because the gifts were intended for a specific individual.

Dick

Agreed. Now, for the sake of curiosity - how might this be set up defiantly if there were to be a much larger amount of money gathered? A separate bank account in the name of one of the giftors does not sound like the best way to go.

In article , Gil Faver

Interesting. Thanks for the education.

"Gil Faver"

I've seen donors earmark gifts, and the gifts were still deductible. The proposed use of the funds would have to be within the exempt purpose of the nonprofit, though, and they would be ultimately responsible for being sure that the funds were used for that purpose. But I don't see why it can't be done.

I have been known to be wrong on occasion, so if I am here I'd love to know about it.

Stu

In the past I have earmarked my charitable contribution for particular projects. There are some charitable organizations that collect money and distribute that money to other charities that do the actual work, sort of like a mutual fund of charities. In my donation to the mutual fund charity I earmarked contributions for a particular project -- ie. a real charity that does something specific. But contributions to specific individuals are not allowed

You cannot deduct contributions to specific individuals, including the following.

Contributions to fraternal societies made for the purpose of paying medical or burial expenses of deceased members. *

Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person. But you can deduct a contribution that you give to a qualified organization that in turn helps needy or worthy individuals if you do not indicate that your contribution is for a specific person.

Example. You can deduct contributions for flood relief, hurricane relief, or other disaster relief to a qualified organization. However, you cannot deduct contributions earmarked for relief of a particular individual or family. *

Payments to a member of the clergy that can be spent as he or she wishes, such as for personal expenses. *

Expenses you paid for another person who provided services to a qualified organization.

Example. Your son does missionary work. You pay his expenses. You cannot claim a deduction for your son's unreimbursed expenses related to his contribution of services. *

Payments to a hospital that are for a specific patient's care or for services for a specific patient. You cannot deduct these payments even if the hospital is operated by a city, state, or other qualified organization.

In this case, would the income be Other Income, just subject to federal taxes; or Schedule C subject to federal and FICA taxes?

Maybe the money the employer contributes could somehow be under section 125 (cafeteria plan) and therefore not subject to any taxes, not even state or local taxes?

Almost certainly W2.

Seth

What if the company has a policy like this: match employee contributions dollar for dollar up to $1000, and the beneficiary must be an employee and sick in a hospital or equivalent, and all of the $1000 is used towards medical expenses with documentation to prove it.

For completeness I should mention that the 15k can be deductible on Schedule A, subject to the 7.5% of AGI limit. (However, if any part of the 15k comes from the employer and is not subject to tax by the cafeteria plan rules, then I imagine that part cannot be deducted.)

So does that mean that contributions to a charity like the Christian Children's Fund, where you sponsor a child () would be non- deductible because they go to the benefit of a particular, identified individual?

Does the aggregation step (described in the link) get around this particular limitation? If so, presumably any "special gifts" would still be non-deductible, right?

I know this has been discussed before, i.e. using a nonprofit org that acts as a conduit to a specific individual, but I have a hard time accepting this idea, since it's clearly a subterfuge.

Call me old fashioned. (but CALL me! grin)

ChEAr$, Harlan

Let me get this straight, now. You're saying that an individual who receives tax free gifts, bona fide, real, GIFTS.... can also deduct the medical expenses paid with such GIFTS.

Yes, I know the law, too, but this somehow don't seem right atall. Not illegal maybe, but unethical.

ChEAr$, Harlan Lunsford, EA n LA

Why not? If I receive wedding gifts and use them to pay my mortgage, would my mortgage deduction be unethical? I can't see the difference. In this particular case the gifts came after the medical costs anyway. The medical costs were paid out of savings or borrowing. Besides I didn't say (I am the OP) that the difficulties were due to medical costs. In fact many people get into financial difficulty due to illness, but not directly due to the medical costs. Other family members may have to take unpaid FMLA to take care of the ill person. They may need to employ caregivers for their children on a round the clock basis, which is a budget buster. They may need to travel to distant locations to received specialized care. I've seen all of this in various cases, and I am not in a profession or vocation where I would see an unusual number of seriously ill people.

Harlan Lunsford wrote: ...

... I don't see why -- consider the case of a parent gifting to an adult child. Would you have a problem w/ that child taking the deduction, too?

IOW, I don't see that where the money came from has any bearing on the issue in this case either legally or ethically.