As the holidays come into full swing, everyone is getting into the gift-giving spirit and employers are no different.
If you are an employer, you may have already started your end-of-the-year employee shopping. You’d like to reward your employees for doing a job well done — or at least say, “Thank you for being on the team.”
However, you may be wondering if employee gifts are taxable. This is an important issue to delve into and understand.
You may feel like doing a good deed, but does this mean you will be paying Uncle Sam, too?
It’s common to hand out employee recognition gifts at the end of the year to those employees who’ve worked hard. Often the employer will do this at the same time they do the performance reviews.
Employers need to understand the tax laws around employee gifts so that they make the best choice for their current situation.
The Internal Revenue Service (IRS) does not view gift giving the same way employers and employees do. While you may give a gift to recognize someone’s hard work or just because it’s part of your company’s brand to do so, the IRS usually considers it as a type of wage (supplemental wages).
Employers will prefer to give a gift to their employees tax-free. So you will want to know the exceptions to the rule about taxing employer gifts.
The “de minimus” Exceptions
The “de minimus” rule makes some employee gifts tax deductible. This rule is an exception to the main rule.
The de minimus rule refers to a benefit which, “considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.”
These fringe benefits are not subject to payroll or income tax, which means employees get their gift tax free.
You may be wondering what type of things fall within this “de minimus” category. Maybe for you handing out small trinkets at the end of the year is just a “small” gesture. But what does the IRS think?
The IRS considers how often the employer gives an item (frequency) as well as the value of the item when determining if it qualifies for the benefit rule.
Here are a few examples of things that you won’t need to worry about:
- Occasionally allowing the employee to use equipment for personal use
- Occasional snacks, pastries, coffee, etc.
- Occasional picnics, get-togethers, parties, etc.
- Occasional outings to a sports or theater event
- Small tokens such as flowers, books, or candy in the event of some infrequent occurrence such as illness, recognition, or family issue.
Are Gift Certificates Tax-Free?
Many cash gifts, gift cards, and gift certificates need to be reported to the IRS as taxable income – so tread carefully when you’re looking at gift certificates.
Thankfully, you can still qualify for the de minimus exception with a Perfect Feast gift certificate.
These certificates have no cash value, are great for holidays, and qualify as “administratively impractical or unreasonable” according to the IRS.
That means our gift certificates are a perfect solution. You can avoid the taxes, and your employees get a gift that conveys your appreciate for them.
This holiday season is a great time to recognize your employees for the great work they’ve done.
Go ahead and give them a gift certificate, like our Turkey Gift Certificate, since you’ll be able to avoid any extra tax hits. Thanks to the de minimus fringe benefit rule.
Plan accordingly, and make sure your employees know how much they mean to you!