A gift which is made to a church but designated for a specific individual is normally not tax-deductible to the donor. The rationale for this rule is that the gift is not intended for the benefit of the church but, rather, for the benefit of an individual. The church is not permitted to act as a “flow-through” entity through which donations can be made to individuals while also qualifying for a tax deduction. Additionally, if the designated individual is a staff member, the amount could be considered compensation to the recipient. Therefore, not only would the donor avoid a tax-deduction, but the recipient could be required to count it as compensation, which is subject to taxes as well as any applicable compensation limits. If the recipient is already at the compensation limit, then the amount simply replaces funds that would have been received from the church anyways and does not result in a net increase in personal revenue to the recipient.
It would be far better in this scenario to simply write the check directly to the individual personally, rather than involving the church. Although this won’t count as a tax-deductible charitable contribution, it will generally avoid income taxes to the recipient and won’t count towards any compensation limits. Gift tax rules may apply.
Another way to avoid an undesirable outcome is for the church to exercise full control over the donated funds and discretion as to their use. In a situation where a donor designates a gift for a particular individual, the deductibility of the gift would depend on whether the church exercised such control of the funds and had discretion to use them as the church wished. Donors should be made aware that although the church will aspire to honor the donors’ designation, all contributions become the property of the church and it has full discretion to use the funds to further its exempt purposes.