The end of the calendar year means different things to
different businesses. For some, it can be their busiest time of the year,
filled with holiday shoppers and administrative tasks. For others, it's a slow
time when employees tend to take the most time off with their families. But for
nearly all businesses, it also means doing some gift-giving.
While giving gifts to employees and recognizing them in
other ways is an important part of the season, employers must be careful to
abide by tax rules in order to avoid causing trouble for themselves and their
employees. What should you know about employee gifts and taxation? Here are
some answers to your questions.
Are Employee Gifts Taxable?
Many employee gifts are taxable to the employee, especially
if they involve some sort of cash or cash equivalent (such as a gift card worth
a particular amount of money). This includes gift cards or vouchers given in
lieu of a traditional gift provided by the company. These gifts are considered
a form of compensation, and the employer is expected to include their value on
the employees' Form W-2.
However, there are a few exceptions. A limited number of
gifts can be given without tax consequences to employees. While your choices
are more limited, the benefits can sometimes outweigh the limitations.
How Can You Make Nontaxable Gifts?
Giving taxable or nontaxable gifts is a decision for each
employer to make themselves. Some companies choose to avoid taxable items in
order to reduce the workload involved in tracking values and processing them
through payroll. In addition, taxable gifts raise the employee's taxable
income. Small gifts may not raise it much, but larger gifts can create more
taxes for staff.
So, how can you prevent this? The primary way is to give
gifts and recognition that qualify under the IRS's de minimis benefit rules. De
minimis benefits are those which are of low value and not given on a regular
basis. For most of these items, it's also not reasonably practical to track the
value, and therefore, they can be exempted.
While one factor that makes de minimis benefits nontaxable
is that they are of low value. Keep in mind that cash and cash equivalents
generally do not fall under de minimis rules, no matter how large or small the
value. This is because it is possible and reasonable to identify their value
and track it for payroll purposes. And even in categories that normally fall
under de minimis rules, gifts
over $100
may not qualify.
What Are Common de Minimis Gifts?
The IRS publishes some examples of de minimis gifts so
employers can apply this rule in their own business. These
examples include
the following:
- Holiday
parties for employees as a whole
- One-time
sports or theater tickets
- Low-value
holiday or birthday gifts
- Occasional
snacks, coffee, cakes, or doughnuts
- Occasional
meals while working overtime
- Condolence
or congratulatory baskets, flowers, or gifts
- Personal
use of some business equipment
Notice a few common threads that can help you identify de
minimis gifts on your own. They are generally of smaller value and don't have a
cash value. Unlike standard compensation, they are given irregularly. And it
may be impossible to determine the actual value per person, such as at a
holiday party or for a company cake.
Where Can You Learn More?
As an employer, learning how to give taxable and nontaxable
gifts will help you and your employees. But it can be complicated and the rules
are not always clear. So the best place to begin is to consult with Quality Bookkeeping
Services Inc.
We'll help you analyze your gift options, avoid unwanted tax
effects, and find the best ways to show your employees you value them. Call
today to make an appointment.
