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Are Holiday Gifts, Prizes or Parties Taxable Wages?

Question:

Are holiday gifts, prizes or parties taxable wages?

Answer:

With the holiday season approaching, organizations may find that individuals or groups who benefit from the organization’s services, desire to make year-end gifts to the organization’s employees for their loyal service.

Employee gifts in the form of cash or gift certificates/coupons, regardless of the amount, are always treated by the Internal Revenue Service as W-2 “wages” subject to withholding taxes. In the case of a gift certificate or coupon, the tax applies to the face value of the certificate/coupon.

An exception to this rule, known as de minimis fringe benefits that an employer gives to its employees, are not subject to income or payroll taxes. A de minimis fringe benefit is any property or service the value of which (after taking into account the frequency with which similar fringes are provided by the employer to its employees) is so small (typically under $50.00) as to make accounting for it unreasonable or administratively impracticable.

Disclaimer: The information in this Q&A is for general information purposes only. Tax issues are complicated and every situation is different, so you should consult your tax advisor or finance department before you do anything that could be a tax liability for employees or which might affect the deductibility of an employee gift.

Having good employee relations is key to effectively managing (and retaining) your workforce. Employees want to feel valued and may not perform up to standards, or stick around very long, if they don’t feel they are needed. Strategic HR, inc. understands the value of your workforce and having good Employee Relations. We’ve helped companies create reward and recognition programs and have coached managers on providing support and mentoring to their employees. Learn how we can help you with your Employee Relations needs by visiting our Employee Relations page.