Taxability of Year End Gifts
Its Christmas season, your employees have worked hard all year and you want to give them something to say thank you. Great idea; there are some rules to follow so that both you and your employees get the best tax treatment. If the rules are followed correctly this is a win/win.
Gifts to employees that qualify as de minimis fringe benefits are deductible by the employer and excludable from the employee’s wages for purposes of both income and social security taxes. De minimis fringe benefit are gifts of property or service that are offered infrequently and have a value so small that it is impractical and unreasonable to account for them. Examples specifically listed in the IRS regulations are:
- Birthday or holiday gifts with a low fair market value
- Occasional cocktail parties, group meals or picnics for employees and their guests
- Occasional theater or sporting event tickets (not season-tickets)
- Coffee and doughnuts
- Flowers, fruits, books, or similar property provided under special circumstances such and illness, family crisis or outstanding performance