It’s the time of year when employers are thinking of creative ways to thank employees and provide a bit of holiday cheer. The gift you choose, however, could have tax consequences for employees, which may not be a welcome prize from their perspective.
For tax purposes, the key question is whether the gift will be considered a “de minimis fringe benefit.” If so, the gift will not be included in employees’ income, meaning they won’t pay taxes for it.
What Is a De Minimis Fringe Benefit?
A de minimis fringe benefit is so small that accounting for it is unreasonable or impractical. A key element is that it’s “occasional” or “unusual” in frequency. The IRS regulations set forth several examples:
- Occasional cocktail parties, group meals, or picnics for employees and their guests;
- Traditional birthday or holiday gifts of property (not cash) with a low fair-market value;
- Occasional theater or sporting event tickets;
- Coffee, doughnuts, and soft drinks;
- Local telephone calls; and
- Flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., after an illness, outstanding performance, or family crisis). Read more here…
Source: HR Daily Advisor