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Holiday Gifts: Taxable or Not? - The Management Association of Illinois
About Us
Holiday Gifts: Taxable or Not?
News Release
November 12, 2009
FOR FURTHER INFORMATION:
Kevin Menzer, Director Membership & Marketing
Phone: 708-308-5160 E-mail: kmenzer@hrsource.org
Holiday Gifts: Taxable or Not?
by Angela Adams, CEBS, SPHR, Senior HR Specialist
The Management Association of Illinois
As the holiday season draws near, some organizations may be lucky enough to have some extra funds to share with their employees, whether via a cash bonus or a gift. It is probably a good time of year to refresh our memories on what kinds of items can be given tax-free and which ones the IRS requires taxes to be paid on.
Items that have very small fair market value are considered “de minimis” fringe benefits in the eyes of the IRS, and employees may receive these tax-free. These are objects that have so small a value that to account for them as part of an employee’s compensation would be impractical. Things that are de minimis fringes include coffee, soda, occasional meals and holiday gifts that are of small value, such as hams, turkeys, boxes of candy and other items. Movie/theater tickets can also be considered de minimis if they are an occasional gift.
Note that the IRS does not consider cash a de minimis fringe, in any amount. Any time employees are given cash, they must pay taxes on the cash amount. In a surprising twist of IRS regulations that many do not know about, gift cards are considered cash. Even though many gift cards cannot be redeemed for cash and must be used for merchandise – merchandise that could be considered de minimis if the employer gave the employee the merchandise rather than the gift card – the IRS does not make distinctions amongst kinds of gift cards, and all must be counted as cash. This means that any gift card amount, even small amounts such as $10, must be included in an employee’s income in order to pay the appropriate taxes.
In determining whether an item is a de minimis fringe, the IRS looks at frequency of the gift as well as the amount of the gift. For instance, if you give employees movie tickets on a weekly basis, the IRS may no longer consider that de minimis and require you to include the value in the employee’s income.
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The Management Association of Illinois is an employers’ association serving more than 1,000 companies and organizations in the Chicago metro area and across Illinois.
In addition to wage and salary surveys and various compliance and best-HR-practices publications, The Management Association of Illinois provides professional services in compensation administration, affirmative action planning, labor and employment law, and training for human resources and management professionals. The Association was formed in Chicago in 1898.
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