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Accounting when donors cover fees

How should donor-covered fees be reported by our business office?

When donors cover processing fees on behalf of the school or institution, we recommend that your business office includes the covered fees in the donation amount. For example, if:

  • Alice selects a $25 donation
  • Alice elects to cover the $1.41 processing fee

Your business office should report that:

  • Alice’s donation is $26.41 ($25 + $1.41)
  • The expense (aka processing fee) from Alice’s donation is $1.41

This method of reporting simplifies the logic for your business office since Alice’s donation is reported the same as other online payments where donors do not cover the fees.

Another benefit of this accounting method is that the entirety of your donor’s payment becomes tax-deductible! So, be sure to reference the full amount paid by the donor in their acknowledgment letter.

Can the covered fees be marked as an unrestricted gift?

Yes. In the above situation, the $1.41 covered fees would be a “temporarily restricted gift for current use”. When a current restricted gift offsets a budgeted item, then it can be counted as an unrestricted gift, because it offsets the operating budget.

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