Are Employee Gifts Taxable?
As a business owner, giving employees gifts and other fringe benefits is something that you are familiar with. Every year you may like to give holiday bonuses or give a gift to each employee on their birthday. This allows you an opportunity to show your appreciation for your employees and to help build a great company culture. However, your good intentions may backfire if you do not understand the tax implications of gift giving. Depending on the type of gift given, it may be taxable income to your employees. But how do you know if a gift is taxable income or not?
What are De Minimis Fringe Benefits?
Most employee gifts are taxable income, unless they are de minimis fringe benefits. These benefits have a minimal value and occur infrequently. They also are not taxable and a business can deduct these items. A previous IRS ruling specifies that a de minimis benefit should not exceed $100. If the value and frequency cause accounting to be impractical, it is likely the gift it is a de minimis benefit. Examples of de minimis fringe benefits are:
- Holiday or birthday gifts with a low market value
- Occasional tickets to sporting events
- Flowers provided under special circumstances
These types of gifts and/or benefits are so small that there is no need to report them.
Taxable Employee Gifts
Cash and cash equivalents are some of the most convenient gifts to give your employees. Some examples of cash equivalent items are gift cards and gift certificates. You may want to think twice before giving these types of gifts though. These gifts are almost always taxable. For example, giving your employees a gift card to buy a turkey for Thanksgiving becomes taxable income for them. All taxable income is reportable on an employee’s W-2.
Planning ahead and having a good understanding of the tax implications for employee gifts is crucial. Keeping records of taxable employee gifts, you give makes W-2 processing easier. But what if you are unsure about what is or is not a taxable employee gift? The best thing to do is to ask your trusted CPA.
Originally written by Jamie M. Shryock, CPA
Updated and additional content provided by Elizabeth Partlow
