Talking Turkey About Employer Gifts
For many businesses, holiday gifts are a tradition. As with most gifts, some prefer tangible items, like turkeys or hams, other prefer things that can be used in the office, such as mouse pads, books or pens, while still others prefer cash because it is more versatile. There is another reason a company might prefer to give things like turkeys or mouse pads: taxes.
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To the Internal Revenue Service, gifts such as turkeys and hams are nominal gifts having minimal dollar value meaning they fall under the de minimis fringe benefits rules. In other words, they can be given to employees without being included as part of employee wages that are subject to withholding and taxes, according to a statement from the National Association of Tax Professionals (NATP).
The Internal Revenue 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 of administratively impracticable after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees.”
A popular alternative to gifting cash is the gift card. Gift cards can be obtained through many retailers and restaurants, and many people see them as a nice middle ground between selecting a specific item for a person and giving cash, which lets the recipient decide on their own gift. Gift card and gift certificates, however, are the same as cash gifts to the IRS.
Cash, gift certificates or similar items of any amount or value, which are easily converted to cash, are considered by the IRS to be additional wages or salary. That means they do not fit the de minimis fringe benefit definition and must be included in wages for withholding and tax purposes.
The tax implications aren’t the only potential problem with gift cards. Some can be used almost anywhere, raising the possibility that the employer may end up paying for something they do not necessarily approve of. In addition if the cards are not used quickly or by the expiration date, the value of the card may slip away, used for fees, until there is nothing left. And some companies charge service fees unless the gift are actually purchased at a physical location, making them less convenient for employers. Finally, some states, such as New York have passed laws to help ensure the consumer, whether employer or employee, is fully informed. Becoming informed, however, may take more effort than many wish to spend during the holiday season despite the risk of nasty surprises.