BGBC Partners, LLP Tax Update: Gifts to Employees
As a store owner, do you ever wonder if those “benefits” you are handing out to show your appreciation to your employees have any tax implications to your business or to the employees themselves? Maybe you are throwing around ideas for what to do around the holidays. Yes, it is early, but we see Christmas specials in summer, so why not plan for taxes now too? Whether the benefits resulted from some sort of achievement, recognition of a holiday, or just because you felt like it, certain IRS rules may apply. That is the focus of this installment of our Tax Update.
The IRS has provided guidance on something called “De Minimis Fringe Benefits” that can assist you in evaluating the taxability of these items. According to this guidance, if you can consider the value and frequency of the benefit as being so small it is unreasonable or impractical to account for, the benefit is generally non-taxable. The lists below give a general idea of items qualifying, or not, as de minimis.
Benefits that qualify as de minimis if occasional or infrequent:
· Personal use of photocopier
· Group meals, employee picnics
· Movie or sporting event tickets
· Occasional snacks, coffee, soft drinks
· Holiday gifts
· Employer-provided local transportation
· Personal use of a cell phone provided by an employer primarily for business purposes
Benefits that do not qualify as de minimis:
· Cash
· Cash equivalents (gift certificates, etc.)
· Certain transportation costs
· Commuting us of employer’s vehicle more than once a month
· Membership in a country club or athletic facility
Now, if the value and frequency exceed the designated de minimis amount, the total value of the benefit is taxable to the employee and should be included as taxable wages. But the law does not specify a value threshold for qualifying an item as de minimis, so the determination rests on the facts and circumstances. For example, let’s say you hold a company picnic once a year for all employees and their families. Since this would be considered infrequent, the value of the picnic would not be considered taxable. On the other hand, if you provide daily meals for employees, the meals are generally included in taxable compensation unless they are provided on the employer’s business premises and are for the convenience of the employer.
The above lists are general guidelines only. It is important to think about the overall value and frequency of the benefit. Evaluate each benefit on an employee-by-employee basis and compare the items to all similar items.
Like many areas involved in running a business, planning your employee gifts is recommended. The tax rules should be one important factor of many when determining the types of gift to give in a particular year.
Since this area of the tax law is filled with rules and regulations, you should consult your CPA to help you sort out the type, quantity and frequency of gifts. The holiday season will be here sooner than you think so the earlier the better!
BGBC Partners, LLP is a full service certified public accounting and business consulting practice.
For more information, contact Brad Bell, CPA or Steve Reed, CPA/ABV/CFF at BGBC Partners, LLP (317-633-4700).