We know you appreciate your employees, and holiday time is a perfect time of year to show them how much you care! Or is it?
Carefully consider your options before you start bestowing gifts. If you want to give, make sure your gifts either fall under the definition of de minimis fringe benefits, or you tax appropriately. A gift certificate for a ham or turkey makes employer gift giving easy, but that would not be considered de minimis, and you would be required to tax the gift.
According to the IRS, non-cash de minimis fringe benefits are “any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to employees) so small as to make accounting for it unreasonable or administratively impracticable.” For example, if you spread the value of a watch awarded for 25 years’ of service over the 25 years, then the value could become de minimis. If the same watch were awarded for something besides 25 years’ of service, then it would not be de minimis.
If you can track a benefit, it’s probably not de minimis. Cash, checks, gift cards, gift certificates, vouchers – all can be tracked and are all taxable. A gift card for a specific dollar amount, even if any unused portion is forfeited, is not de minimis.
If you want to distribute turkeys or hams as your traditional holiday gift, you might have to worry about refrigeration, but you don’t have to worry about taxing the gift. An even better option might be to issue vouchers so employees can redeem them for a ham or a turkey at a store – this is the same as if you passed out the meat yourself, except you didn’t have to refrigerate it! The voucher is proof that the employee is entitled to your traditional holiday gift.
Just don’t trick yourself into thinking you can give employees a $35 gift card to go buy that bird, because that makes it a taxable turkey!