BPHR’s Director Lisa Salcido, SPHR, SHRM-SCP provides answers to your pressing HR questions.
Question: We send our employees gift cards for the holidays. What is the maximum value we can give before it’s considered taxable?
Answer: Acknowledging your employees with holiday gift cards is a thoughtful gesture. Unfortunately, the IRS complicates employer to employee gift giving practices by viewing any amount of cash or cash equivalent (such as gift cards) as taxable compensation.
The IRS provision, De Minimis Fringe Benefits, defines which benefits are small enough to be excluded from taxable wages. Some examples of small non-taxable benefits are flowers for special occasions, infrequent parties/meals or gifts, other than cash, with a low fair market value.
Any gift of cash or cash equivalent (gift cards, gift certificates) is never a de minimis fringe benefit. Therefore, the value of any gift cards, regardless of how small, has to be reported as wages to the employee.
Employers often incorrectly assume that the term “gift” differs from wages, but in the context of an employment relationship, courts have generally found that the employer’s intention in giving a “gift” is to reward for past performance or to provide an incentive for future performance. Thus, is treated as compensation for services and falls within the definition of wages for income tax withholding and payroll tax purposes and should be included on Form W-2.
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DISCLAIMER: The material presented on this page is for informational purposes only and does not constitute legal advice or legal opinion.