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(Updated October, 2022)
Churches today receive most of their tithes and offerings online, and in order to offer more giving options, many have started using peer-to-peer (P2P) payment services like Cash App, Zelle, and Venmo for nonprofit donations. These P2P platforms allow direct payments from one person to another. They’ve become popular because they’re quick to set up, familiar to end users, and appear to charge minimal processing fees.
However, using P2P payments like Venmo for churches can spell trouble for pastors and their finances. Let’s explore the risks of using peer-to-peer payment apps for your church.
Many pastors have their own personal peer-to-peer payment accounts for purchases and other personal transactions. However, donations sent to an individual’s account are not normally tax deductible. For example, if a church planter uses their personal account to receive Zelle, Venmo, or Cash App donations, they cannot send donors charitable tax donation receipts.
The IRS also changed the 1099-K requirements in 2022, requiring Venmo, Cash App, and Zelle to report any users that have over $600 in transactions per year (compared to a $20,000 limit the previous year). While this change doesn’t have much effect on churches with a 501(c)(3) status, it could cause potential complications for pastors receiving donations through their personal P2P accounts as those appear as personal income instead of donations.
It’s important to consult with a tax professional or reach out directly to the IRS with any questions associated with using peer-to-peer payment platforms for receiving donations.
Venmo is owned by PayPal and is best known as a peer-to-peer payment solution. They recently updated their terms to allow registered 501(c)(3) organizations to receive charitable donations. To qualify for this option, each church must create a PayPal business account and submit specific documentation to be approved for a charity profile.
Venmo and PayPal are primarily focused on accepting payments—not donations—meaning they lack some basic church-focused features. For example, according to their website, “There isn’t a way to manage your charity profile via the web.” Such limitations can create extra work and frustration for your pastor and staff.
It’s also important to note that if PayPal decides that your church’s activities are promoting “hate…or any other forms of intolerance that is discriminatory,” you’re liable to pay “$2,500.00 U.S. dollars per violation” of PayPal’s Acceptable Use Policy.
Some churches are using Cash App to receive charitable contributions. However, Cash App makes it very clear that those contributions are not tax deductible: “Amounts sent to the Organization do not qualify as a tax deductible donation and transferees will not receive a receipt for the amount transferred other than customary Cash App records of transfers.”
On top of that, their parent company, Block, Inc. (formerly Square, Inc.) also charges non-profits 2.6% + 10¢ for each transaction with a credit card. If the credit card information is entered manually, the transaction fee increases to 3.5% + 15¢. Fortunately, there are other giving platforms that are easy to use, offer tax deductible statements, and offer better features than Cash App for nonprofits.
In ”Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem,” the New York Times reports that donations made through Zelle for nonprofits may not be protected from fraud. Also, there are an increasing number of fraud cases where banks are denying refunds to Zelle customers. Some users have even reported that their accounts were hacked through Zelle and all of their funds stolen!
Correctly managing your church's finances can be a big challenge. To get helpful and practical advice on how to be a good steward of your church’s resources, download your free copy of the Church Budgeting Guide today. This free 27-page guide contains all of this and much more:
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