With several winter holidays approaching, many businesses are making decisions about whether to give holiday gifts to their workers. Be aware that these gifts can have tax ramifications for employees.
Gifts from an employer to an employee are generally subject to both income tax and employment taxes. The value of the gift must be reported on the employee's Form W-2 for that year. Cash and gift certificates are always taxable, said Jonathan Segal, an attorney with Duane Morris in Philadelphia.
A holiday gift may be considered de minimis and not taxable if it's worth less than $100, and it's occasional or infrequent. The IRS specifically lists these examples: snacks, coffee, flowers, fruit, books, occasional tickets for entertainment events, and occasional meal money or transportation reimbursements for working overtime.
"Whether an item or service is de minimis depends on all the facts and circumstances. In addition, if a benefit is too large to be considered de minimis, the entire value of the benefit is taxable to the employee, not just the excess over a designated de minimis amount," the IRS website states.
Holiday gifts can be nontaxable if they are in the form of a coupon for a specific item with no redeemable cash value, such as a coupon for a free ham or turkey redeemable at the local grocery store, according to Melissa Magoon, a certified public accountant with Berry Dunn in Manchester, N.H.
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