Wondering about the potential taxes associated with a few popular online fundraising options, including Facebook, GoFundMe, and cash apps? Not sure whether you have to pay taxes on fundraiser money? Here are a few helpful insights.
Big Facebook Total—Big Tax Bill for One Teacher
A Connecticut middle school teacher started a personal Facebook Fundraiser for a special cause: to help local families buy groceries as the COVID-19 pandemic began. The fundraiser went viral, and he raised over $41,000. Then the IRS sent him a letter indicating the $41,000 he raised on Facebook would be taxable income.
Are Facebook Fundraisers Personal Income?
As the teacher learned, for personal Facebook Fundraisers, fundraising tax laws maintain that funds raised may be considered taxable income for the person who collects the donations because those donations are paid into their personal bank account.
Keep in mind that this policy does not apply to Facebook Fundraisers that benefit nonprofits like Help Hope Live—details on that below.
Why Nonprofit Facebook Fundraisers Are NOT Considered Income
When you start a Facebook Fundraiser, you have two options: starting a personal or “personal cause” Facebook Fundraiser or starting a nonprofit Facebook Fundraiser.
Personal Facebook Fundraisers deposit funds into an individual’s bank account. That’s why fundraising tax laws indicate that the funds are potentially taxable income for that individual.
Nonprofit Facebook Fundraisers are different. With nonprofit Facebook Fundraisers, the funds you raise go directly to the nonprofit of your choice (such as Help Hope Live). As a result, the funds are nonprofit donations, and they are not personal taxable income to the individual who started the Facebook Fundraiser.
When donations from Facebook Fundraisers come to Help Hope Live in honor of a client, the client will not owe taxes on those funds.
Help Hope Live maintains full discretion and control over all the funds raised in honor of our clients. Because of our unique model, ALL the funds that arrive in honor of our clients—whether via check, online donation, or Facebook Fundraiser—funds raised are not personal taxable income or assets for clients.
Start with our Facebook Fundraiser guide if you’d like to start a Facebook Fundraiser to benefit Help Hope Live in honor of a client.
Taxes for Cash Apps Like Venmo or Direct Mutual Aid
More people than ever are turning to cash apps like Venmo, PayPal, and Zelle to raise funds for personal causes. As Forbes reported, by 2023, these cash apps will automatically report any funds you receive over $600 to the IRS. This category is likely to extend to online buying-and-selling platforms like Ebay and Mercari.
As with personal Facebook Fundraisers, cash app funds go directly into an individual’s bank account or become available in their cash app accounts for personal use. As a result, these funds are typically taxable as personal income under fundraising tax laws.
Some personal contributions are not taxable for the recipient—examples include reimbursement from a friend, a roommate’s share of the rent, or funds that are considered a “gift” to the recipient. However, it is up to the recipient of these funds to carefully track each contribution plus its intention and use and report the details when they file their taxes.
For cash app fundraisers that garner hundreds or thousands of donations, it may be a big burden for the recipient to take this additional record-keeping step throughout the fundraising process.
While using a cash app to collect contributions may feel like a quick and easy way to get community support, always remember that receiving funds that may be considered “personal income” can leave you on the hook for the associated taxes.
Do You Have to Pay Taxes on GoFundMe Money?
When it comes to taxes, GoFundMe offers a complicated view of the funds that individuals raise through their platform.
While some GoFundMe campaign donations may be considered “personal gifts” that don’t lead to tax implications for the recipient, there are no guarantees. Starting a GoFundMe means taking on the risk that the recipient of the funds will be liable for associated taxes.
There are several factors that potentially influence whether GoFundMe funds are taxable for the beneficiary, included the “intended use” of the funds and the total raised. As with cash apps and other fundraising pathways, it’s up to the recipient of the funds (or their community) to correctly document the funds raised and navigate the specific tax implications that may apply to their fundraiser.
How Help Hope Live Protects Clients from Tax Burdens
At Help Hope Live, we believe that fundraising should be about community support, generosity, and meeting critical needs—not navigating the tax system. That’s why we manage all the funds raised in honor of our clients: to prevent those funds from becoming income or assets to our clients that may demand subsequent tax payments.
Out of all the fundraising options available to you, from personal Facebook Fundraisers to GoFundMe campaigns and cash apps, Help Hope Live is the only option that offers true relief and protection regarding tax obligations for individuals who need community support and secure financial assistance. Funds raised typically do not jeopardize a client’s eligibility for state-based benefits, either, such as Medicaid or SSDI.
Contributions are tax deductible for donors, and each campaign is medically verified—two more protections that allow donors to feel secure so clients can ask for help from their communities with confidence.
Always keep in mind that while we know our nonprofit inside and out, we are not tax professionals. If you have tax-related questions about the content in this post and need further guidance, ask for help from a tax expert.
