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Jean   Murray

Employee Appreciation Gifts - Taxable or Non-Taxable?

By December 4, 2008

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This time of year many companies think about giving gifts to employees. As I mentioned earlier this week, sometimes the gifts are in the form of bonuses. While these bonuses are tax-deductible for you (the employer), they are taxable to employees. But what if you gave a small gift to each employee?

The American Institute of Professional Bookkeepers reminds us of the IRS regulations for gifts to employees this holiday season:

  • Small gifts, like fruit baskets, turkeys, wine, or flowers are generally considered nontaxable de minimus fringes.

  • Gift certificates are considered taxable wages, and are subject to all employment taxes, even for a de minimus item. So the gift of a turkey is not taxable, but a gift certificate for a turkey is taxable.

  • Occasional holiday parties are not taxable to employees and their families, as long as they are infrequent, but the party is a deductible business expense for the employer. Parties are not subject to the 50% limit on business meals.

Some companies that give gift certificates give a larger amount and take the tax out of employee wages. For example, a company that used to give a $40 value gift certificate now gives a $50 certificate, but takes the difference out of employee paychecks in taxes. None of this tax talk should dampen your holiday spirit. If you want to say "thank you" to employees over the holidays and throw a party or give gifts, you can still do those things. Just be aware of the tax implications.

The AIPB has a free report, "How to Tax 2008 Bonuses, Gifts, Prizes, and Awards," which you can receive by emailing info@aipb.org . Image source: Getty/S. Wanke/PhotoLink

Comments
April 24, 2014 at 8:33 am
(1) Courtney says:

Hello,

I do have a question about this whole tax on a gift from a company. What if per say, the company provides a gift card that can only be used within that company? Wouldn’t that tax then become the Employer responsibility or null and voided? For example this company is a corporation of grocery stores and they give their Employees gift cards to these stores. To me it seems like the company is profiting not only by the gift card itself, but also the tax. Can you please provide further information about this scenario?

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