How do you show your employees you appreciate their hard work? If you choose to give your staff gifts or throw them a party, remember that only certain types of gifts are tax deductible. Here’s a quick overview of some employee gift options to help you show your appreciation:
Employee Gifts:
The IRS doesn’t recognize non-cash gifts of nominal value as taxable income, but rather as a de minimis fringe benefit (one in which the value and number of times it’s given is so small, accounting for it isn’t practical). But cash or a cash equivalent — like gift certificates or gift cards, or prepaid cards — are taxable employee gifts. Regardless of the amount, cash gifts must be included in the employee’s wages.
However, depending on circumstances, the IRS states that a gift certificate for a specific item can be considered a de minimis fringe benefit. The item must be one “that is minimal in value, provided infrequently, and is administratively impractical to account for.”
Parties:
Thinking of throwing an office party? Remember, the food is fully deductible only if the party is for the benefit of employees and their families. Historically, if clients, independent contractors, or customers attend the soirée, then entertainment rules apply and only 50% of the food and beverage costs associated with these partygoers are deductible (and this applies even if you hold the party virtually). Don’t get too lavish! The IRS always keeps an eye on business deductions and the costs associated with an extravagant event.
Thinking of showing your thanks with some employee gifts this year? Reach out to our trusted network of accountants, tax experts and business advisors at Padgett so we can help ensure your employees benefit from the present and you make the most of the available tax deductions. Find an office near you today!