What should a nonprofit say when a volunteer asks for a receipt for their hours?

The honest answer: time is not deductible

The value of a volunteer's time, labor, and professional skill is not a charitable contribution under the tax code, no matter how skilled the volunteer or how many hours they gave. A CPA who spends forty hours on your audit and a retiree who spends forty hours sorting donations are in the same position: neither can deduct anything for the hours. This surprises people, especially professionals who know their billing rate, and the request for a receipt often comes from a genuine belief that one exists. Your job is to explain clearly and without making anyone feel foolish for asking.

A good response acknowledges the gift before explaining the rule. Something like: your hours made a real difference to us, and we want to be straight with you that the tax rules do not allow a deduction for the value of donated time, so we cannot issue a receipt for it. Then pivot to what you can do, which is described below. Volunteers who hear both parts usually accept the answer easily. Volunteers who hear only the refusal sometimes leave feeling that their contribution was dismissed.

Keep reading: Why Year End Receipts Matter to Donors, What a Compliant Donation Receipt Needs, Thank You Letters That Deepen Giving. See how TaxThank helps you year-end donation receipts and tax letters for nonprofits.

What volunteers can deduct: out-of-pocket expenses

Volunteers may deduct unreimbursed expenses they paid directly in the course of serving your organization. Common examples include mileage driven for volunteer work, which is deductible at the charitable rate of 14 cents per mile set by statute (or actual gas and oil costs), plus parking and tolls. Supplies purchased for a project, postage, and the cost of a uniform that is required and not suitable for everyday wear also qualify. Travel away from home can qualify when there is no significant element of personal vacation in the trip, which is a judgment the volunteer's preparer should make.

The volunteer keeps their own records for these expenses: receipts, a mileage log with dates and purposes, and so on. Your organization does not reimburse or value them, and you do not put dollar amounts on anything. But there is one place you do come in. When a volunteer's unreimbursed expenses for a single activity reach $250 or more, they need a written acknowledgment from you, just as a cash donor would, describing the services they provided and stating whether you gave them any goods or services in return. That letter is entirely appropriate to issue and is what most volunteers asking for a receipt actually need. Related: Keeping Clean Donor Records

Writing the volunteer acknowledgment

The acknowledgment for volunteer expenses is a short letter. It names the volunteer, describes the services they performed and roughly when (for example, served as a construction volunteer on the spring rebuild project from March through May), and includes the statement that no goods or services were provided in exchange, or describes what was provided, such as meals during a work day. It does not list expenses or amounts, because you do not know them and are not certifying them. The volunteer attaches their own expense records to it.

Timing follows the usual rule: the volunteer needs it before they file, so sending these in January along with donor statements is the natural rhythm. Some organizations issue them on request only, which is reasonable, but it helps to tell volunteers in advance that the letter is available and what it is for. A line in the volunteer handbook or the year-end thank-you email saves a dozen confused calls in March and positions your organization as one that knows the rules. Related: Thank You Letters That Deepen Giving

Recognizing time without misrepresenting it

None of this means you should stay quiet about volunteer hours. Tracking them and reporting them back to volunteers is good stewardship, and a year-end letter that says you gave us 120 hours this year, and here is what that made possible, is one of the most effective retention messages a small organization can send. The only rule is not to attach a dollar figure that looks like a tax value. If you want to express the impact in dollars for internal reporting or grant narratives, that is fine, but keep it out of anything that could be mistaken for substantiation. Related: Handling Year End at a Small Nonprofit

There is a quieter reason to get this right. Volunteers who also give money are often your most committed donors, and the volunteer acknowledgment is a chance to thank them as whole people rather than as a line in the database. A short, specific note about what their hours accomplished, sent with their donation statement, does more than either document alone. Software can merge the two if your records are linked; a thoughtful person with a mail merge can do it too. What matters is that the volunteer sees that you noticed. Related: Why Year End Receipts Matter to Donors