Tis the season of giving! It is that time of year where you want to show your hard-working employees how much you appreciate them. However, what should you get them? The easiest and most common gift is money, but is it taxable? The answer is yes. What about the latest iPad? Still, yes.
Almost any gift you give your employee(s) is subject to income tax, unless it qualifies as de minimis. For example, if give a $500 Apple Watch as a gifts, the employee could pay taxes up to $200. The employee won’t be happy on having to pay $200 on something that is supposed to be a gift. Additionally, this gift will be a taxable benefit or fringe benefit, and needs to be included on their year end forms.
What is de minimis? By definition it means it is too trivial or minor to merit consideration.
According to the IRS, “If an employer distributes turkeys, hams, or other merchandise of nominal value to its employees at holidays, the value of these items would not constitute salary or wages.”
To qualify as de minimis, the gift must be the same for all employees, if a select group of employees get this gift and other get something different, the gift is subject to income tax.
- Traditional birthday or holiday gifts (not cash) with a low fair market value. Such as a turkey, pie, box of cookies, etc.
- Occasional cocktail parties or group meals.
- Special circumstances, such as flowers, fruit, books, or similar items during an illness or for individual recognition.
- The value of a merit or service award presented as cash cannot be greater than $400.
- The value of non-monetary awards is a gray area.