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The types of gifts you provide this holiday season not only have tax consequences for your employees but for your business as well.
Gifts of food such as turkeys, hams, and fruit baskets are non-taxable employee fringe benefits. Such gifts are not taxable to the employee as wages, and they are fully deductible as a business expense by the employer. (Because these food gifts are not considered as meals and entertainment expense, you can deduct 100% of the cost.)
On the other hand, gift cards are considered "cash equivalents" and are taxable to your employee as wages which are subject to all payroll taxes.
The IRS has specifically classified traditional non-cash holiday gifts with a low fair market value as de minimus fringe benefits excludable from tax. These are the guidelines to follow when hunting for such employee gifts:
- The value of the gift must be nominal.
- Accounting for the gift would be impractical. For example, adding the value of a box of candy to an employee's W-2 is impractical.
- The gift is provided only occasionally, and
- The gift is given to promote the goodwill or health of employees.
Have a fun and safe holiday season! |
