Receiving an office gift during the holidays often brings squeals of joy. However, those squeals of joy often turn to grunts of “oh no” when employees realize that the value of some gifts is includible on their Form W-2.
Generally, cash and non-cash gifts, bonuses, and awards are additional W-2 wages subject to payroll and income taxes. However, if the gift, bonus, or award is a “de minimis fringe benefit” or an “employee achievement award,” it is tax-free to the employee. IRC Section 132; IRC Section 274(j).
Determining if a gift, bonus, or award qualifies as an employee achievement award is relatively simple. If the amount given is based on either the employee’s length of service or given as a safety award it generally qualifies as an employee achievement award.
Determining if a gift, bonus, or award qualifies as a “de minimis fringe benefit” can be more complicated. Essentially, the value has to be so little that accounting for it would be unreasonable or administratively impracticable. For some employers this can get complicated because the IRS has not provided any guidance to determine when the facts and circumstances indicate that the value of the gift is too little.
The IRS has identified the following items as a “de minimis benefit” if they are given occasionally.
1. Group meals
2. Employee picnics
3. Theater or sporting event tickets
4. Coffee, doughnuts, or soft drinks
5. Flowers or fruit for special circumstances
6. Local telephone calls
7. Traditional birthday or holiday gifts (not cash) with a low fair market value
Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.