Holiday Gift Income Tax Implications

It’s that time of year when many employers want to do something extra special for their workers.  Sometimes holiday plans may include an after-work dinner party, end-of-year bonus, or a physical gift.  Holiday gift income tax rules can be confusing and put a damper on giving your staff gifts.  Depending on what you give your employees, the item may be considered taxable income by the IRS. 

Holiday extras might be considered income?

Yes, unfortunately, the IRS is not as generous as we’d like when it comes to compiling all the items that are included as taxable income.  Talking with your CPA or bookkeeper about all the plans you have for treating your staff is important so they can guide you with formal tax advice.  Here are a few guidelines to provide a general overview and get you thinking about what might be taxable for your business.

General Guidelines for Holiday Gift Income Tax

Essentially, the IRS says that anything of value that goes from an employer to an employee is income unless it is a de minimis fringe benefit.  

Section 132(e)(1) of the tax code defines a de minimis fringe benefit as any property or service where the value is so small that accounting for it is unreasonably or administratively impracticable.  For example, it’s generally accepted that having free coffee in the breakroom is not something employers need to tax.  However, having a free coffee bar in the lobby might be.

Note that de minimis must be a “property” or “service.”  Cash is never considered a de minimis item for two reasons.  First, cash is the normal payment for labor between an employer and an employee.  Secondly, it is always easy to track how much cash you provided to an employee.  

What about gift certificates?

Gift certificates are a bit tricky.  It really depends on what kind of gift certificate you’re giving an employee.  It’s widely accepted that a fixed-value certificate (i.e., a $25 gift certificate to the local grocery store) is taxable.  However, it’s not as clear when the gift certificate is for a specific item (gift certificate or coupon for a free turkey, for example.)

How about the company party?

Usually, company parties or occasional lunches are not considered taxable.  However, keep in mind that frequency element.  If you’re providing free lunch every Friday, the IRS might start looking at that as payment for work and want it to be taxed.

Do I have to tax the bonus I give my employees?  

Almost certainly, yes.  If you are giving money to an employee, even as a holiday gift, the IRS will consider it taxable income.  To them, it doesn’t matter if it’s an envelope with $50 in it or a check for $2,500.  If it’s cash to the employee, it’s taxable.  And, depending on how you give it to the employee, the rules for how you tax it will be different (according to normal withholding rates or supplemental tax rates.)  Talk with your CPA or tax professional whenever you give cash to an employee.

How can Collins Manufacturing help?

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Collins has been an industry leader in towing equipment for over 45 years.  Our Hi-SpeedⓇ Dolly and Carrier Dolly systems provide towing professionals with lightweight solutions durable enough to get even large vehicles out of challenging situations and transport them safely wherever they need to go.  Our products are designed with safety first to keep your employees safe while attaching and moving vehicles.  Visit our website or give us a call to learn more about our products.