Navigating the IRS Maze: Holiday Bonuses & Gifts for Employees

'Tis the season for spreading cheer, and that often includes giving gifts and bonuses to employees! But before you deck the halls with festive treats, be sure you brush up on the IRS rules surrounding these generous gestures.

Holiday Bonus:

• Taxable: Bonuses based on performance or achievement are considered taxable income and must be included on employees' W-2 forms.
• Non-taxable: If the bonus is non-discretionary and based on a clear formula, it may be excluded from income taxes.

Holiday Gifts:

• De minimis benefits: The IRS deems gifts of minimal value as non-taxable. This currently applies to gifts valued at $25 or less per employee.
• Cash & gift cards: These are considered taxable income and must be included on employees' W-2 forms.
• Traditional gifts: Items like hams, turkeys, fruit baskets, or flowers are generally non-taxable if given occasionally and not considered a regular perk.

Here are some additional tips to remember:

• Frequency: Consistent gifting throughout the year can push even small gifts over the de minimis threshold.
• Documentation: Keep records of all gifts, including their value and date of issuance.
• Gift card restrictions: Gift cards that can only be used for specific goods or services may be exempt from tax, but consult with a tax professional for guidance.

By understanding these rules, you can ensure you're spreading holiday cheer while staying compliant with the IRS. As always, your CPA can help you navigate the specific details of your situation and ensure you are following all applicable regulations.

Resources:

• IRS Publication 525: https://www.irs.gov/pub/irs-pdf/p525.pdf
• IRS De Minimis Fringe Benefits: https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits