The Holidays Mean Parties, Giving, and Tax Relief!
There are employers who use the Xmas season to give their employees a party, gifts or a bonus. If you are an employee you don’t have to claim the worth of gifts. Employees only claim for a cash bonus. If you are an employer, Uncle Sam permits you to simply write off such costs but they must meet specific limitations.
A gift in common law differs from a gift bestowed by an employer. A common law gift is one that is given for no reason and only to please the recipient. Normally, an employer bestows a gift to an employee as a reward for previous service or as an incentive for forthcoming performance. Tax law recognizes these differences. If an employer wants to be disqualified from payroll taxes then Uncle Sam stipulates an employer’s gift ‘must be made generously with respect, admiration, charity or like impulses’.
An employer’s gift that is not liable for payroll taxes and is a deductible business cost is a ‘de minims benefit. This is according to the Internal Revenue Code Section 132(e) (1).
Any non-cash holidays gift from an employer to an employee is not within that employee’s salary and is not liable for payroll taxes. It is permissible to give items such as gift baskets, flowers and books. For such gifts to be non-taxable they must be a ‘low fair market value’. There are no exact regulations regarding the monetary worth of such gifts.
Employers are permitted to subtract the expenses of infrequent events such as picnics for employees and guest, birthday parties etc. Infrequent sports and theater tickets are also not liable for payroll taxes. However, a cash gift or gifts ‘easily exchangeable for cash’ is part of an employer’s earnings and liable for payroll taxes. Objects that can be swapped for cash like stocks are also taxable. Employees must show it on a tax return and employers are liable for extra payroll taxes.