The IRS has certain rules you need to follow regarding holiday gifts to employees.
The common legal definition of the term gift is different than the tax application of the term gift. Employers sometimes give an employee a gift to reward past performance or as an incentive for future performances. These sorts of gifts are not tax-deductible as the definition applies to gifts given in respect or admiration, charity or similar impulses.
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A "de minimis" fringe benefit is a gift given to an employee that is not subject to income tax, but is a tax deduction for business purposes. The Internal Revenue Service definition of a "de minimis" fringe benefit is any property or service which has a value so small that it makes accounting for it unreasonable or administratively impractical after taking into account the frequency with which similar fringes are provided by the employer to employees.
There is the ham, turkey, and gift basket rule that provides for the giving of non-cash holiday gifts. In essence, the IRS allows, flowers, gift baskets, turkeys, hams, and any gift of low fair market value to be given without a tax consequence to the employees. The IRS does not set a specific monetary limit to low market value.
The "de minimis" fringe benefit also allows employers to deduct the cost of occasional parties and event tickets without a tax liability to the employees attending. This also goes for picnics, birthdays and the like. The Internal Revenue Service also allows for sporting event and theater tickets to be handed out without counting as an employee's income.
The stipulation on gifts of cash is that they must be reported as part of the employees' income along with any gifts easily exchanged for cash like stock, bonds, Treasury note, etc. Such gifts would require the employer to pay additional payroll taxes and the employee to treat these gifts as income.
Tax on Holiday Gifts to Employees
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