Neil &  Company CPAs, PC

A Professional Corporation

1184 North 15th Street, Bozeman, MT 59715

 

Phone: 406-587-9239

 

September 2020

September 2020 Q and A

Question and Answer

QUESTION:
I own a small company and want to reward my employees during the holidays. What can I do for them without triggering a tax issue?


ANSWER:
All forms of compensation are subject to income tax unless specifically exempted. So items like gift cards, savings bonds, and gift certificates are all reportable as taxable income on the employee’s W-2. You’ll also need to do the appropriate withholding and pay payroll taxes on this money.


Follow the Rules
To completely avoid triggering any tax issues for your employees don’t gift cash and cash equivalents. Understand the de minimis rules which apply to gifts that are minor, of low value, infrequent, and administratively impracticable to track and report. Benefits that meet these requirements are generally not reportable as income.


The IRS does not identify any specific value as qualifying for de minimis treatment. Instead, the IRS looks at the overall nature of the gift, bonus, prize, or perk. Holiday gifts are generally okay if the value is so low that accounting for it is unreasonable or impracticable.


Bottom Line
You can probably provide a reasonable holiday dinner, lunch or party for your employees without reporting it as income – as long as it’s not a common or recurring event. The same goes for holiday gifts like flowers and gift baskets of modest value.


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