Holiday Gifts to Employees are Not Taxed Equally

Courtesy of NATP

Gobble, Oink, or Squeak?

National Association of Tax Professionals (NATP) Appleton, WI – Does it gobble, does it oink, or does it squeak into your wallet? With holiday gifts to employees, what matters to the Internal Revenue Service (IRS), thus to taxpayers, is the form in which an employers’ holiday gift is given.

Nominal gifts (of minimal dollar value) of items such as turkeys or hams that are given by employers to promote good will to their employees can be given without being included as part of employee wages. This means that the value of these gifts (which fall under de minimis fringe benefits rules) do not need to be included in wages that are subject to withholding and taxes.

The IRS Code Section 132(e)(1) “…defines a de minimis fringe benefit as any property or service the value of which is so small as to make accounting for it unreasonable or administratively impracticable after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees.”

Gift cards for an equal value are not the same. If an employer distributes cash, gift certificates, or similar items of any amount or value, which are readily convertible to cash value, the cash or value of such gifts is considered as additional wages or salary. Thus, gifts of this type do not fit the definition of a de minimis fringe benefit under the code and regulations and must be included in wages for both income and tax purposes.

So, gobble, oink, or squeak; what matters at tax time is the form an employers’ holiday gift takes.

For more information on this and other tax issues, consult your tax preparer. Selecting the right tax professional will save you time, headaches, and oftentimes money. To find a professional tax preparer, look to NATP. NATP maintains a listing of professionals in your area at www.taxprofessionals.com.

Members include individual practitioners, enrolled agents, public accountants, accountants, attorneys, and financial planners. Learn more at www.natptax.com.