A Recent Client Question – Reporting Revenue Earned Through Volunteer Service

Almost all non-profit entities sponsor fund raising events or campaigns and often use volunteer support to run their program activities. Managing funds and reporting correct financials around volunteer based activities can be tricky.

One of our church clients raised the following question:

Our youth work in a concession stand to raise funds for their mission trip. Periodically the 3rd party vendor sends the church a check for a portion of the sales. The church then allocates the proceeds based on the students who volunteered and worked to raise those funds. Is this o.k.?

From the IRS’ standpoint – the payments made to volunteers is considered a “fee for service” and is considered taxable compensation to the recipient (i.e., student). Payments greater than $600 should be reported on Form 1099-MISC to the student.

To avoid reporting taxable compensation, the church could allocate the fundraising proceeds to the youth department to be used in program activities or could allocate the proceeds to all the students who go on the mission trip. This way – the funds are not allocated based on service.