Before you start passing out the Harry and David’s tower of goodies to your staff, you should know the tax implications of these gifts.
Although you might think that gifts and parties are simply ways to celebrate or reward your team for their hard work, the Internal Revenue Code Section 61 states that all forms of compensation are subject to income tax, unless specifically excluded by the tax code. But Section 102(c) excludes from gross income the value of property acquired by gift, bequest, devise, or inheritance. It may seem confusing, but Section 102(c) also states that the gift exclusion does not apply to “any amount transferred by or for an employer to, or for the benefit of, an employee.” So, what is included and what is excluded?
Bottom line, when an employer gives a gift to an employee, it is taxable under Section 102(c). The exception is if this “fringe benefit” qualifies as a de minimis fringe benefit, meaning that the value is so small that it makes accounting for it unreasonable and administratively impractical.
Examples of exempt items include:
- Traditional birthday and holiday gifts of property (not cash) with a low fair market value
- Occasional cocktail parties, group meals or picnics for employees
- Occasional theater or sporting event tickets
- Coffee, doughnuts, and soft drinks
- Flowers, fruit, books provided to employees under special circumstances
- Occasional personal use of the employer’s copying machine
- Local telephone calls
Examples of benefits that are NOT excludable
- Season tickets to events
- The use of an employer-provided vehicle for more than one day a month
- Membership in a private club
- Use of employer-owned or leased facilities
- Cash – Always taxable
- Gift Cards
Your employees are perhaps your most valuable asset, and of course, you want to thank and reward them. Just use your best judgment about how you thank them. Certainly, an unwanted gift is a tax bill this April.
For more information, call the professionals at Niroc Consultants, or click here to read more.