The Dangers of Using Zelle, Venmo, Cashapp for donations.

Again let’s face it a church which does not accept their donations online or the use of credit/debit cards is hindered in their fundraising. Due to this – many have started using what is called peer-to-peer payment services such as Zelle, Venmo, Cash App. So.. let’s look at The Dangers Of Using Zelle, Venmo, Cashapp For Donations.

These apps are great for sending money to a child in college who needs gas, or sending money to a close friend who needs funds. They are attractive to churches because of their low service fees. But as I will share, these apps are not designed nor do they have the regulations in place for non-profit use. Which can put a church and their non-profit status in jeopardy.

Potential IRS complications

Let’s tackle some of the legal complications FIRST. 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 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.

As well as we now know 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. Which is tax deductible as it is now a “salary” seperate from the church salary.

The other factor is record keeping. The moment a donation is made it because a legal document in the eyes of the IRS. The church is required to retain those records for 4 years (recently updated). As per IRS rules the audit of a church must be for the preceding 3 years from the notice, so if they give you notice in 2023 it would be for 2022, 2021, 2020. In the event a donor is audited the donor AND the church must provide corresponding donation records. If there is a discrepency the donor and the non-profit may be in trouble.

Although you can open an email that is directly tied to the P2P – there is no accountability for those donations in a P2P transaction. And because of this you will see how some P2P even warn non-profits because the chance for fraud is higher in P2P than a actual credit/debit transaction.

Now let’s look at thing by P2P vendors:

Venmo  

Venmo is owned by PayPal and is best known as a peer-to-peer payment solution. Let’s face it if you are or were a church planter Paypal was your #1 go to in the beginning. However unless you go through the process of registering as a 501c3 with Paypal/Venmo technically you are NOT allowed to give tax deductible donation letters. The platform is owned by Paypal – not you the 501c3 organization. That money that gets processed through venmo is a for profit business. To qualify for the non-profit option, each church must create a PayPal business account and submit specific documentation to be approved for a charity profile. And in their policies it does state that to receive charitable donations via their platform you MUST be pre-approved.

Lastly we have to keep in mind the “cancel culture” we live in. So 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.

Cash App

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¢. So NOT tax deductible but they charge non-profits a fee.  Fortunately, we @ iPoweredChurch provide a giving platform that if you are a non-profit it is 2.2%+.30 with a cap.

Zelle

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!

In their use policy they make it cloudy but clear to tell you – both users (sender and receiver) use at their own risk. They have a class action waiver in their use policy it states: “CLASS ACTION WAIVER. ALL CLAIMS AND DISPUTES WILL BE RESOLVED ON AN INDIVIDUAL BASIS. YOU AND ZELLE® WAIVE ANY ABILITY TO PARTICIPATE IN A CLASS ACTION AS A CLASS REPRESENTATIVE OR AS A CLASS MEMBER. THERE WILL BE NO CLASS ACTIONS“. This means that it releases them from ANY responsibility of fraud, robbery etc you cannot sue them. There is no accountability.

iPoweredChurch Donation Module

Our donation module is under your ownership and control. Since you are the non-profit you have all the records, all the donations, and your organization is covering the donations. The only thing the module does is provide a gateway for donors to give. 

This alone or alongside our church management system provides you again, ownership security of data, and gives your ministry the full benefits of the tax deductible donations.