Clarifying Rules for Gifting to Employees by the IRS
Birthdays, holidays, and work anniversaries are all great times to provide personalized gifts and awards to your employees. But how can you ensure that gifts you give aren’t taxable, so there are no surprises from the IRS for your employees this tax season?
A recent clarification by the IRS made the rules on employee gifts simpler. This article will summarize the rules and help you determine whether employee gift is considered taxable income or a nontaxable gift.
For employers, the tax laws are straightforward. Any gifts or awards that you give to employees are tax deductible expenses. As a business owner, you can deduct $400 for all awards given to one employee annually. However, the tax implications of gifts for employees isn’t as transparent.
Which gifts are considered taxable income for employees?
Cash and cash equivalent items such as gift cards, vacations, meals, lodging, and event tickets are always taxable for to your employee. However, gifts that are de minimis fringe benefits, such as a holiday present or an employee achievement award of tangible personal property for a length of service aren’t taxable.
This article from the IRS can help you determine whether your gift is a de minimis fringe benefit, but generally, for a corporate gift to not be taxed it must:
- Be a holiday gift, a gift for under special circumstances, or an achievement award.
- Be a gift that’s given occasionally or under special circumstances.
- Have a value of less than $100.
- Not be a form of disguised compensation.
With that said, it’s good to know that certain non-cash holiday gifts and awards are taxable. Be sure to discuss the specifics on any of these gifts or awards with your tax advisor:
- A gift that exceeds $100 will be taxed on your employee from the IRS.
- An award that exceeds $400 in value or if your employee receives awards that exceed $1,600 throughout the year must pay tax on those awards.
You now know enough to decide which gifts to give your employees, so they don’t owe additional taxes to the IRS on what they receive. Next, look at the personalized gifts and awards that TP&Co. creates for business professionals. We’ll be happy to help you find and personalize gifts for your upcoming corporate event.