Striving to earn that end-of-the-year bonus or the possibility of getting rewarded for dedication with a company gift motivates many employees to perform their best. So, after tackling final deadlines and tying up end-of-the-year goals, it’s only natural as an employer to want to spread cheer and show your employees how much you appreciate all that they have done.
After all, everything your organization accomplished this year would not have been possible without your employees’ commendable efforts and wholeheartedness to your company’s cause. Rewarding their loyalty can secure high employee satisfaction for the new year and achieve a win-win for the gift-giving season. The only thing standing in your way of being the best supervisor is, you guessed it, the possible tax implications.
How do you know if your employees will receive all your generous gift? Are gifts taxable to the employees? Are employee gifts deductible for employers? What are the tax implications of gifts? Many questions will surface throughout the corporate gift-giving process. Look no further to get quality guidance to help you transition into a hassle-free holiday season.
Tax Benefits for Employers
This MARCO Promos blog post should only be used as a starting point in your gift-giving process. For specific tax questions consult your accountant or legal team.
In answering, are company gifts taxable, complete transparency throughout the whole process will go a long way. There is nothing worse than employees who think they get an entire holiday bonus amount, when in reality taxes need to be taken out. In general, anything of value given to an employee is considered a deduction for the employer, but make sure to check the final details.
This means employers can deduct their larger holiday gifts, so go ahead and get giving! According to LBMC, an accounting business advisory and professional services firm, “All gifts and awards to employees are deductible expenses for employers.” This would include cash, gift cards, bonuses and achievement awards, such as vacation trips that employees have earned.
Tax Liabilities for Employees
What about those thoughtful holiday gifts, the ones that are not cash or gift cards? Examples of this type of gift would be a holiday ornament, chocolates, mug gift sets, coasters or even a holiday turkey. These noncash gifts under $75 are considered de minimus fringe benefits by the IRS, which means that the items are regarded small in value so that employers don’t get a tax break on them and the value is not taxable income. On the other hand, gifts such as merchandise, sporting event tickets, concert tickets, performance tickets, etc. in excess of the $75 are taxable.
Let’s look at some examples:
- For example, you want to purchase a sweater and a coffee mug for each employee with the total cost per employee being $50. This would not be deductible.
- Now say you wanted to get them a basket cooler filled with wine and snacks, as well as tickets to a local sporting event. The total cost is $60. This is still not deductible.
- In another instance, you give each employee a gift card for $100. This would be deductible and taxable to the employee.
One other exception to this rule are gifts awarded for length of service or safety achievement. These are not taxable, unless they are given in the form of a gift certificate, cash or points redeemable for merchandise. This tax-free value is limited to $1,600 per employee, per year.
Are there tax implications when giving gifts to customers?
This time of season, many businesses also want to take care of their highly valued customers or clients with a special gift. Remember that it is the thought that counts, so when considering gift ideas for clients aim to get something that your customer will enjoy and appreciate. Again, looking at how the taxes work for this circumstance will help you out in the long run.
How are taxes handled in this situation? These gifts are deductible for employers, but the IRS places limits on them to $25 in gifts per person per year. This limit is for individuals, so there is no limit on group gifts to a company, such as a gift basket for everyone to share. Incidental costs are generally not included. This would be something such as wrapping, engraving or shipping costs.
In summary, the taxability of employee’s gifts depends on the type of award and the value of the gift. Either way by preparing to get employee appreciation gifts now, your generosity will not go unnoticed and your company will continue to earn praise and thanks from employees and customers alike.
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