New York State Tax

Tax Implications of Gifts

The Internal Revenue Service (IRS) has rules regarding gifts and taxes. As with the IRS, some of these rules are slightly hard to understand. The basic idea however, is that when an employer gives gifts to employees, the gifts are usually taxable.

One common gift an employer gives to employees is a cash gift. The IRS treats cash gifts as compensation. It generally does not matter if the cash gift is called a bonus, or a gift, or any other term. If an employer gives an employee a cash gift, it is taxable and must be included in the employee's taxable wages. This also means that the employer is responsible for paying his equal share of FICA taxes on the amount of the cash gift. Generally, gift cards are also viewed as cash gifts and are also taxable. It is however, important to consult a tax professional to find out the current laws and rules regarding gifts.

Most of the time, employers are able to give employees small gifts tax-free. A small gift is something small, such as a ham or fruit basket. According to the IRS, a small gift is anything with a value of less than $100. If the gift is over $100, it is considered a large gift, and is taxable.

The IRS has certain rules you need to follow regarding holiday gifts to employees.

One reason why this topic is important is so that employers know whether or not their gifts can be written off. If a gift is taxable, the employer has the right to write off the gift as an expense. If the gift is non-taxable, the employer may or may not be able to write off the gift as an expense. The IRS calls this a "de minimis" fringe benefit. This word refers to a gift that is tax free to the employee, but is a tax deduction for the employer. For example, if an employer gives each employee a turkey as a gift, the employees do not pay taxes on the gift; however, the employer can write off the cost of the turkeys as an expense. This is often the reason why employers give holiday parties. A holiday party is a way the employer can give something to the employees and be able to write off the party as an expense.

Employers should always consult a tax professional before making any decisions regarding employee gifts. A tax professional or CPA can help an employer decide the best options for giving gifts to employees.

These resources may be helpful if you need help filing your corporate or personal income tax return or have other questions regarding federal or state tax: professional bookkeepers and accountants.