Someone in the community just joined your organization’s leadership circle and paid $2,000. Would this be considered a donation or program revenue? It all comes down to whether the member received a significant benefit or an insignificant one.
Membership dues are presented as contributions on Form 990 if they represent contributions from the public. Payments for benefits are reported as program revenue on Form 990.
What is considered an Insignificant Benefit?
The value of the membership benefits can be disregarded when annual membership dues are $75 or less and the benefits are insignificant. Insignificant benefits include rights and privileges a member can exercise often during the membership period and can include:
- Free or discounted admission to the organization’s facilities or general events
- Discounts in the gift shop or restaurant
- Free or discounted parking
- Stroller or locker rental
- Newsletters used to keep members informed about the organization’s activities which are not available to nonmembers
- Admission to member-only events where the organization estimates the cost per person (excluding overhead) is within the definition of low-cost articles meaning of IRC Sec. 513(h)(2). The low-cost article amount is $10.70 for 2017 and $10.80 for 2018.
What is considered a Significant Benefit?
If there are rights and privileges a member cannot exercise often during the membership period, these are significant benefits. These include:
- Free or discounted admission to specific events
- Free private use of the facilities
- Newsletters and periodicals that contain advertising and include articles for which the authors are compensated.
Significant benefits include items provided to donors, which exceed low-cost article definition and admission to events open only to members where the organization estimates the cost per person exceeds the limits established for low-cost articles. They can also include free or discounted special events or performances since these would happen infrequently.
If annual membership dues are greater than $75, you need to first consider whether the organization offers any memberships at $75 or less in order to determine the difference between significant and insignificant benefits. If an equal or lesser membership does exists, the insignificant benefits offered to the higher membership are the same as those offered to the membership levels of $75 or less. If the organization does not have membership levels at $75 or less, then none of the benefits are deemed to be insignificant and none of the benefits can be disregarded.
Insignificant Benefit Example
Member pays annual membership dues of $75 and receives free admission to the museum for a year, a 10 percent discount at the gift shop and a copy of the monthly newsletter. These benefits are considered insignificant and the full $75 is considered a donation.
Significant Benefit Example
Member pays annual membership dues of $1,500 and receives free admission to the museum for a year and a ticket to attend a special event free of charge with an event cost of $50. The event is not open to all membership levels. Since it is not open to all members, then the benefit is significant. Therefore, $1,450 is considered a donation and $50 is considered an exchange transaction.
Non-benefit Example
Member pays annual membership to a recreation center of $380. Benefits include use the facilities for the year. This is an exchange transaction and would be reported under program fees as membership dues.
Reporting membership dues on Form 990 comes down to membership benefits. Taking time to review the benefits received by your members at each membership level will help ensure you are reporting them properly.
