De Minimus Gifts

[Golden Rocket]

You've all been asked this question before. If an employer (with around 80 employees) wishes to give each employee money without it being taxable as compensation,
how much would you recommend? $20, $50, $0, $35, or some other amount??

[Bees Knees]

The correct answer is $0.

From TTB, page 13-28

De Minimis Benefits [IRC §132(e)]
The value of de minimis benefits provided to employees are excluded
from taxable wages. A de minimis benefit is any property
or service provided that has so little value that accounting for
it would be unreasonable or administratively impractical. For
this purpose, the frequency of providing similar benefits to employees
is taken into account. Cash is not excludable, except for
occasional meal money or transportation fares. Examples of de
minimis benefits include the following.
• Occasional personal use of a company copy machine
if at least 85% of its use is for business.
• Holiday gifts, other than cash, with a low FMV.
• Group-term life insurance payable on the death
of an employee’s spouse or dependent if the face
amount is not more than $2,000.
• 100% of the cost of meals, such as coffee, doughnuts, soft drinks,
or meals provided to enable an employee to work overtime.
• 100% of the cost of meals provided to employees at an employeroperated
eating facility, such as a restaurant type facility. This
applies even if employees eat their meals immediately before
or after their shift.
• Occasional parties or picnics for employees and their guests.
• Occasional tickets for entertainment or sporting events.
• Transportation, such as providing an employee an occasional
transportation fare for working overtime.
• Personal use of an employer-provided cell phone, provided primarily
for noncompensatory business reasons.

[ATSMAN]

Instead of giving the employees $20 or $30 taxable benefit, just have a nice catered lunch or dinner for the holidays. None of that would be taxable to the employees and employer can deduct!

[Gary2]

My first large employer gave us turkeys. Though it was after Thanksgiving, so they were cheap, but it was still appreciated, and made for a fun event picking up your frozen turkey from the delivery truck. (Smaller offices and people with special requirements got coupons.)

Currently, we get a nice luncheon at a local restaurant.

[JON]

$25

I believe it has been this forever. The bigger problem is the promotion-sending out holiday gift packages. Make sure it is addressed to the OFFICE of so so. The hope the numbers there times $25 exceed the value of what was sent.

You are better to have you annual event, dinner, for all..

[TaxGuyBill]

The $25 gift limitation is for clients, customers, vendors, etc. NOT employees. As noted by Bees Knees, ANY cash (or cash equivalent) given to the employee is taxable compensation.

You MAY give a non-cash de minimus gift tax free to employees.

http://www.irs.gov/publications/p15b/ar02.html#en_US_2013_publink1000193660

[Bees Knees]

The other way to do it is to gross-up the gift so that the employee gets the cash without knowing it is taxable. Use the gross-up computation in TTB, page 23-9.

For example, pretend Joe Employer wants to give Joe Employee a $100 cash gift at the end of the year. Plug $100 into the worksheet, assume a 7.65% FICA withholding, 15% federal withholding, and 5% state withholding (total withholding percentage is 7.65% + 15% + 5% = 27.65%).

Line 1 = $100
Line 2 = 100%
Line 3 = 27.65%
Line 4 = 100% minus 27.65% = 72.35%
Line 5 = $100 ÷ 72.35% = 138.22
Line 6 = $100 X 27.65% = $38.22

The result is $138.22 gross wages added to the W-2 with $20.73 federal withheld, $10.58 FICA withheld, and $6.91 state withheld for a net wage of $100.00

Joe Employer then sticks a $100 bill in an envelope and gives it to Joe Employee. The gross wage and withholding are added to the W-2 at the end of the year.

Joe Employee now thinks he got a $100 gift from his boss.

[Roberts]

It's been a hard year but I refuse to cut back on our corporate Christmas bonus.
I'm going all out this year and giving each and every employee an expense paid vacation including airfare for 12 days next August.
Expenses don't matter to a guy like me, it's an all out affair, wives are invited! My wife refuses to go though as she's afraid what she might see.

If I had more than 1 employee this would be a burden I couldn't afford.

[jmcdtax]

Roberts

Do you have any job openings?

[S T]

The other way to do it is to gross-up the gift so that the employee gets the cash without knowing it is taxable. Use the gross-up computation in TTB, page 23-9.

For example, pretend Joe Employer wants to give Joe Employee a $100 cash gift at the end of the year. Plug $100 into the worksheet, assume a 7.65% FICA withholding, 15% federal withholding, and 5% state withholding (total withholding percentage is 7.65% + 15% + 5% = 27.65%).

Line 1 = $100
Line 2 = 100%
Line 3 = 27.65%
Line 4 = 100% minus 27.65% = 72.35%
Line 5 = $100 ÷ 72.35% = 138.22
Line 6 = $100 X 27.65% = $38.22

The result is $138.22 gross wages added to the W-2 with $20.73 federal withheld, $10.58 FICA withheld, and $6.91 state withheld for a net wage of $100.00

Joe Employer then sticks a $100 bill in an envelope and gives it to Joe Employee. The gross wage and withholding are added to the W-2 at the end of the year.

Joe Employee now thinks he got a $100 gift from his boss.

Same rule would apply if Employer is giving a $ 100 Gift Card?

Sandy

[Bees Knees]

Same rule would apply if Employer is giving a $ 100 Gift Card?

I would interpret a gift card that allows you to buy anything at a store as being a cash equivalent, meaning it is taxable. In contrast, a gift certificate for a specific item (such as a free turkey at a grocery store) as not being a cash equivalent.

[ruthc]

Roberts - only 1 employee?

Sounds like you only have 1 employee. You said if you had more than 1 employee it would be a burden. Right?

[Roberts]

Do you have any job openings?

You wouldn't get along with the 1 employee my company has.

Don't tell anyone I said this but he's kind of a jerk who demands everything in the office be done HIS way.

[New York Enrolled Agent]

I would interpret a gift card that allows you to buy anything at a store as being a cash equivalent, meaning it is taxable. In contrast, a gift certificate for a specific item (such as a free turkey at a grocery store) as not being a cash equivalent.

Bees - I don't disagree with you on a specific item such as the holiday turkey.

However, as a general rule, gift cards, gift certificates and the like are cash equivalents and included in income.

A snip from Reg. §1.132-6
Thus, except as provided in paragraph (d)(2) of this section, the provision of any cash fringe benefit is never excludable under section 132(a) as a de minimis fringe benefit. Similarly except as otherwise provided in paragraph (d) of this section, a cash equivalent fringe benefit (such as a fringe benefit provided to an employee through the use of a gift certificate or charge or credit card) is generally not excludable under section 132(a) even if the same property or service acquired (if provided in kind) would be excludable as a de minimis fringe benefit.