Many companies and organizations like to reward employees and volunteers with appreciation gifts during the holidays. However, it often seems as if Ebenezer Scrooge wrote the tax laws on gifts. Companies and organizations who are aware of what’s taxable and what’s not taxable can make informed decisions regarding types of gifts and amounts.
- Cash, gift certificates, or gift cards are always taxable, subject to federal income tax as well as Social Security tax. Therefore, employers are required to withhold federal income tax and FICA tax for cash and cash-equivalent gifts to employees.
- Season tickets to sporting or theatrical events (more than a single set of tickets)
- Employer-provided automobile or car allowance (all business miles must have documentation)
- Use of employer-owned or leased lodging or entertainment for private use (not a company party)
- Health club or country club membership (even if the employee never uses the benefit)
- Employer-provided group-term life insurance on the life of the spouse or child of an employee
- Food, such as a holiday turkey, ham, or gift basket
- Group meals or parties for employees and their guests
- Birthday or holiday gifts with a low fair market value (not cash)
- Occasional sporting event or theater tickets
- Beverages and snacks in the office
- Flowers or small gifts given to employees for special circumstances such as to thank for a special effort, or time of illness, celebration, or family crisis
If you have never taxed seemingly small gifts to employees or volunteers, you’re not alone. But companies, churches, and nonprofit organizations are all accountable for correctly administering the IRS requirements. Plan accordingly, and have happier holidays, knowing that you’re in compliance.