Employee Gifts and Awards

Dec

13

Employee Gifts and Awards

What to know at year end….

As the year comes to a close, many businesses provide a Holiday gift to their employee’s, either in cash or in merchandise.  Take note, when providing these gifts they may be taxable.  Below is a guide for those Holiday gifts:

  • If the Holiday gift is monetary, including gift certificates these gifts are taxable and subject to Federal, State and local income tax with-holding.
  • Prizes, bonuses and any award that involves goods or services are taxable income to the employee.
  • Length of service awards and awards for employee’s achievements, such as safety are not taxable if the following is true:
    • The award cannot be cash, gift certificate or other cash equivalent item
    • The award is tax-free and is limited to the employer’s cost and cannot exceed $1,600
    • The length of service is award must be for 5 or more years and the employee cannot have received one in the previous 4 years
    • However, they are no longer tax free if the following are true in regards to length of service / acheivement awards:
      • The safety achievement award is given to managers, administrators, clerical employees or other professional employees
      • More than 10% of eligible employees receive the award during the year
  • Gifts of minimal value, such as a holiday turkey, are generally exempt from tax following the IRS de minimis rules.  What is considered de minimis?  Generally, gifts from $25-$75 to any employee in one year would fall under this rule.
  • Any gift, in excess of the de minimis rule above, is taxable to the employee.

If you have any questions regarding the above rules, please do not hesitate to contact our office.  We look forward to working with you!