Holiday gift from an employer: Taxable benefit or tax-free gift?
Sunday, December 04, 2011
It's holiday gift time and that could include goodies from your boss.
Of course, any time you get something from an employer, there's a strong possibility that the IRS could consider that as income and want its piece of your Christmas gift pie.
When you get a year-end bonus, for example, it's pretty clear that the extra money is taxable income.
That payment is usually taken care of by the reward being added to your pay stub and accounted for on your annual W-2. If your boss is really nice, she'll gross up your bonus enough to cover the taxes so that your net extra cash is what you expected.
What about cash slipped into your pay envelope? It's relatively common for small companies that have had a good year to share the wealth this way.
Sorry. The IRS generally considers any amount of cash as a wage and we all know that wages are taxable income.
Sometimes a gift is just a gift: But there are small gifts that fall under the IRS de minimis fringe benefit rule. That's Latin for "of minimal value" and IRS-speak for "we don't care."
The bottom line to the recipient is these types of gifts typically are not considered taxable income.
The key here is that the gifts to workers not be very expensive. In fact, the IRS notes on its Web page dedicated to the taxation of employee gifts that it has "ruled previously in a particular case that items with a value exceeding $100 could not be considered de minimis, even under unusual circumstances."
But as long as the gift is worth less than that, it's OK. And that amount is this week's By the Numbers figure.
However, the IRS is not a total Grinch.
It also notes that "a certificate that allows an employee to receive a specific item of personal property that is minimal in value, provided infrequently, and is administratively impractical to account for, may be excludable as a de minimis benefit, depending on facts and circumstances."
So that's why your local grocer and your boss team up every December!
Gift certificate image courtesy PFR Corporate Gifts
Click image (or here) to see complete slide show on IRS de minimis rule
That gift certificate for a holiday ham or turkey that your boss hands out to everyone is, in the IRS' estimation, a de minimis gift and you don't have to report its value as income.
However, the meal's trimmings, including possible food taxes, are your responsibility.
Gift cards count as income: And the more common gift cards now offered by just about every retailer also are taxable. In Publication 15-B, the IRS specifically states:
"Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare."
So if your boss gives you a $25 card you can use at the local electronics chain store, sorry, that value is taxable income.
Check with your state: Not to rain on your Christmas parade, but you also need to make sure your state also follows the federal de minimis gift rules. Most do.
And you might want to check beyond your state's tax office.
Public employees, including teachers, in Alabama are finding that they are limited in the holiday gifts they can accept.
AL.com reports that sweeping revisions to Alabama's ethics laws that took effect in January, imposing tight new restrictions on public officials, employees and lobbyists, are now, as Christmas draws near, prompting about 25 calls a day to the state Ethics Commission regarding holiday gifts.
And it's not just gift recipients who could get in trouble. The Andalusia Star News reports:
"As it stands now, area parents could be breaking the state's new ethics law by giving their child's teacher a gift of value.
You can still bake cookies, or bring in something consumable such as hand lotion or a candle, a potted plant or a coffee cup if spending less than $15, said Jim Sumner, director of the Alabama Ethics Commission, which has been asked to clarify the law as it relates to holiday gifts.
But cash or anything that a teacher could turn around and resell is out of the question, Sumner said, as are holiday turkeys and ham."
Alabama officials plan to meet next week to clarify the law, which in its current form simply says that a gift item must be of de minimis value.
Here's hoping that the ruling comes in time for youngsters to give their teachers an apple or batch of homemade holiday cookies without breaking the law.
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