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The ACD Blog > 5 Gifts Ideas for your Employees and their Tax Consequences

If you are thinking of giving ‘gifts’ to your employees this season, here are 5 of the more popular ideas. A brief, unscientific survey of fellow workers reveal that most employees like cash. However, don’t forget to tax any gift appropriat

1. Money – Cash in any amount is considered wages and should be included in the employees W-2. Bonus’, if a separate check from wages, can be taxed at 25% or by an aggregate method. (See IRS Pub. 15 (http://www.irs.gov/publications/p15/ar02.html#en_US_2014_publink1000202352.)  The employer may deduct the bonus amount, if it is for services rendered, not a gift, on their taxes.

2. Time off – Paid or not is always appreciated. How about a paid volunteer day in your community? Employee/employer tax rules apply as usual.

Note of appreciation, flowers, etc. Recognition of their efforts and job well done is a very thoughtful way to show your employees that you value them. This has no tax consequences.

3. Tangible Gifts – Certificates or a real turkey is a great idea but also has tax consequences. That holiday ham is not taxable as wages because it qualifies as excludable ‘de minimis fringe benefits’ from wages earned. A big screen TV, however, would be includable because of it’s larger value. The general gift card or certificate, however, is includable in wages. A gift card for a particular redemption of an item, like a turkey, is not includable in wages. Employers may deduct food gifts of nominal value, at 100%.

4. Parties -The good news is that the employer may take a 100% expense deduction for those occasional holiday parties for their employees, and the employee does not have to include the value in their wages. Whether the party includes employees, family members or customers determines the percentage of the deduction the employer is allowed to take.
Of course, these are just some of the IRS rules and there are always exceptions. You may want to check with your state Department of Revenue as well, as sometimes the rules can be different.

For more detailed info, check out the following IRS websites on Employee Benefits:

http://www.irs.gov/pub/irs-pdf/p5137.pdf

http://www.irs.gov/publications/p15b/ar02.html

http://www.irs.gov/publications/p463/ch02.html

http://www.irs.gov/pub/irs-pdf/p535.pdf

What holiday gifts will your employees reveal that they want this year?

About the author

Jewel Financial Services

Jul Ham

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