So you are feeling festive, and you want all your employees to know you appreciate their hard work in 2019. But before you dash to the Mall (or your favorite website), here are a few reminders:
Cash Equivalents are Taxable to the Employee.
Sad but true. Any gift card or certificate, whether redeemable at a restaurant, movie theater, store, or website, must be included in the employee’s taxable compensation. Cash equivalents are not considered “de minimis” in any amount and cannot be excluded. The only exception is small amounts of cash provided for an occasional meal or transportation to enable an employee to work unexpected overtime. Such cash is not excludable for expected overtime hours (although reimbursements under an accountable plan may be excludable from taxable compensation under the right circumstances).
De minimis Noncash Gifts are Not Taxable to the Employee.
Small items such as flowers, candy, books, a fruit basket, occasional tickets for entertainment events, or similar items given as holiday gifts may be excludable if the following is true:
- It is done infrequently,
- The nominal value is so small as to make accounting for it unreasonable or impractical,
- It helps promote the health and productivity of employees, and
- It is not a form of disguised compensation.
Many organizations believe that as long as the value of the item is less than $25, then it is de minimis. However, there is no primary authority that sets $25 as the limit. Employers should determine what constitutes “nominal value” based on the facts and circumstances. In one instance, the IRS took the position that items with a value exceeding $100 could not be considered de minimis, even under unusual circumstances.
For more information, please reach out to us for a free initial consultation.
