In the spirit of holiday festivities, many employers embrace the tradition of giving gifts to their employees during at holiday parties or as tokens of appreciation. While employees certainly appreciate the gesture, it is even more appreciated by the IRS and assorted state agencies.
IRS (a/k/a Scrooge) view of taxability on Gifts
According to the U.S Internal Revenue Service (IRS), most gifts given by employers to employees are considered as additional wages and hence are taxable, regardless of the form they take – cash, gift cards, or tangible goods (IRS, 2021). This is an important premise to start with, as it lays the foundation of understanding the tax implications surrounding gifts received at an employer-sponsored holiday party.
Given the small value many companies do not view this as income or wages. In legal and accounting circles that is referred to as De Minimis. The IRS does have an exception for these items called the de minimis benefits rule, which may exclude certain gifts of minimal value from being considered as taxable income.
For the IRS, size does not matter.
The IRS does not specify a dollar amount for what constitutes a “minimal value.” In one case the IRS pursued a company for taxes on $10.00 gift cards. The simplest rule to follow is if you can determine the value, it is taxable. This means any type of gift card, gift certificate or voucher, even given as a prize to employees would be taxable.
Companies should treat their employees well every day of the year. If you decide at any time of the year to give gift cards or similar items as rewards, incentives or door prizes, remember that they are mostly taxable as wages.
ALL OF US AS ADDIS LAW AND MAIN STREET DEVELOPMENT WISH YOU A HAPPY HOLIDAY SEASON AND PROSPEROUS NEW YEAR.
Disclaimer: This article is for informational purposes only and not intended as legal or tax advice. Consult with a professional advisor for advice on your circumstances.