Employee Gifts are Taxable

I was perusing the news a few weeks ago. The news headlines said, “Wal-Mart Slammed After Gifting Employees 55-Cent Ramen Noodles” for working during a blizzard. Needless to say, Wal-Mart was dragged on Social Media. While I agree, it’s a cheap “gift”, it also made me think of other headlines of similar disdain, like this one: A bus driver retired after 50 years, and ‘all’ they gave him was replica of a bus with his picture on it.

Did you know that most employee gifts are taxable?

De minimis Gifts are not taxable

A De minimis gift is a non-cash gift or award, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical. In the Wal-Mart example, 55-cent Ramen Noodles would definitely qualify as de minimis. It was a one-time inexpensive gift.?

Internal Revenue Code 132(a)(4) excludes de minimis gifts from income (meaning not taxable to the receiver).

Examples of De minimis items not included in taxable income

• Controlled, occasional employee use of photocopier
• Occasional snacks, coffee, doughnuts, etc.
• Occasional tickets for entertainment events
• Holiday gifts
• Occasional meal money or transportation expense for working overtime
• Group-term life insurance for employee spouse or dependent with face value not more than $2,000
• Flowers, fruit, books, etc., provided under special circumstances
• Personal use of? a cell phone provided by an employer primarily for business purpose

Cash gifts are taxable

Cash is considered wages, unless an exception applies. An example would be OCCASIONAL meals or transportation. If the meals or transportation becomes a regular occurrence, it will become taxable as wages.?

Cash or cash equivalents, such as gift cards, are always taxable income. Gift cards/certificates for general merchandise are never excluded from taxable income. If Wal-Mart had given each employee a Wal-Mart Gift Card for 55 Cents instead of the Ramen Noodles, the 55 cents would have been added to their taxable income.

Internal Revenue Code 274(j)(3) states that achievement awards are tangible personal property awards and:?

• Cannot be disguised wages
• Must be awarded as part of a meaningful presentation
• Cannot be cash, cash equivalent, vacation, meals, lodging, theater or sports tickets, or securities.

Imagine getting a vacation with a side of a tax bill

Can companies ‘afford’ to give employees ‘better’ gifts? Unequivocally yes! However, tax law says they can’t, unless the employee pays taxes on the value of the gift. Wal-Mart gave employees a pack of noodles worth 55 cents. One would think they could have at least sprung for two.??

Read this post in its entirety on my blog.

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LuSundra Everett, EA is the Home Biz Tax Lady, owner of Everett Tax Solutions, and ETS Tax Relief. LuSundra is passionate about educating taxpayers about tax law in an easily digestible manner. LuSundra is a huge proponent of tax education and offers training to other Tax Professionals to help them stay on the cutting edge of tax law and new developments. If you need assistance with an IRS or state tax issue, contact ETS Tax Relief here.