Employee Holiday Gifts
It’s that time of the year when employers are determining what gifts to give their employees for the Holidays. There are a few important things to consider when making the decision. The following summarizes the basic rules for cash and non-cash gifts.
Cash gifts or bonuses, regardless of amount, are considered wages subject to payroll taxes. This includes gift certificates or other items that can be converted to cash.
Accounting for cash gifts can be complicated. Cash, bonuses, and gift certificates are supplemental wages and are subject to federal income tax withholding of 22% in addition to social security, medicare and unemployment. For gifts or bonuses given as checks, many employers will “gross up” the wages so that the employee receives an even amount as a net check. When a gift certificate or actual cash is given, the amount must be “grossed up” so that the net after tax gift equals the gift certificate or cash amount. The gross up may need to include retirement plan contributions, if applicable.
Non-cash de minimis fringe benefits such as hams, turkeys or other gifts of nominal value are excluded from employees’ income and therefore are not subject to payroll taxes. Per the Internal Revenue Service, in order to be considered a de minimis fringe benefit all of the following requirements must be met:
- Nominal value
- Accounting for the item is impractical
- Provided infrequently
- Purpose of gift is to promote health, good will, contentment, or efficiency of employees.
If the requirements are not met, such as a gift with a large value, it would be considered income to the employee and would be subject to payroll taxes.
If you any questions or need assistance with the accounting for your employee gifts, please give us a call.