December 2014 HR Brain Teaser

Brain Teaser Courtesy of EPLI Pro™

End of Year Employee Gifts

Your company has had a fantastic year! You know that your employees deserve a lot of the credit for the success, and you’d like to give them a holiday gift. Maybe you could give choices of cash, gift cards, or one of those delicious honey baked hams – save them from having to cook.

You remember something about gifts being taxable, but don’t remember if:

A.  You can give your employees any gift of any value without it being taxable;

B.  All employee gifts are taxable income to the employee;

C.  Gifts up to $100 are not considered taxable;

D.  Nominal gifts are not taxable, but cash and gift cards always are.

Answer:  D     One would certainly think you could give an employee a gift without creating a tax consequence for them. However, under the IRS guidelines, only “De Minimis” benefits may be excluded from an employee’s wages.

A de minimis benefit is any property or service you provide to an employee that has so little value that accounting for it would be unreasonable or administratively impracticable. Of course, if you provide the de minimis benefit every week, it should be taxed; but once a year, it would not be taxed.

Examples of de minimis benefits include nominal gifts for birthdays or holidays, holiday turkey or ham, flowers, plaques, a gold watch for retirement, occasional parties or picnics, occasional tickets for theater or sporting events, or parking for the month, so long as the value is less that the statutory limit for qualified transportation fringe benefits. Cash or gift cards/certificates will always be taxable under IRS guidelines. For those employees who choose cash or gift cards, you would have to impute the tax based on the value.  Our recommendation for the holiday gift? The scrumptious honey baked ham or other nominal gift. You can give it without a tax consequence for your employees, which employees always appreciate!

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