Cash gifts – you know they’re taxable. But what about non-cash holiday gifts? The answer: It depends. 

If they’re large, with a value in excess of $100, the employer must report the value of the gift on the recipient’s W-2 and withhold the appropriate amount of taxes.

Smaller gifts like flowers, fruit, books, snacks and the occasional tickets to entertainment events are considered de minimus fringe benefits by the IRS and are not subject to taxation.

The IRS also says it does not consider holiday parties to be a form of taxable compensation, as long as they are “reasonable.”

That means don’t fly your employees to Hawaii to celebrate the holidays and expect the trip to be tax exempt.

Meanwhile, a dinner out at a local restaurant would not require tax withholding.

Cash equivalents

Cash gifts are always taxable, as are gift cards and gift certificates — regardless of their size.

There are no de minimus exemptions for cash and cash equivalents.

Info: For the IRS’ overview of fringe benefits, click here.
And for a rundown of some of the worst holiday gifts employees say they’ve received, click here.

Tags: de minimus, fringe benefits, gifts, IRS, taxes