Issue

Herein we revisit the “employee birthday gift card” issue that we’ve talked about before – whether de minimis gift cards must be included in an employee’s compensation and reported on Form W-2 each year.

Situation

Saltwater Christian College (SCC), a private college exempt under Internal Revenue Code section 501(c)(3). SCC has historically given employees in the accounting department $20 Nile Books gift cards for their birthdays. SCC has considered these birthday presents as a de minimis fringe benefit for these employees. The folks at SCC saw a recent “Tax Tips” edition and is concerned that the value of these gift cards should be included on the employee’s W-2 each year.

Before January 1, 2016, we had to tell SCC that the gift cards should be taxable and included in compensation for the accounting department employees and reported in the employees’ Form W-2 each year. But, based upon a provision in the Protecting Americans from Tax Hikes (PATH) 2015, it appears things may have changed.

** For previous discussion, see the “Tax Tips” situation involving Ward, the CFO at Marathon Bible College and the $15 Moonrox Coffee gift cards.

Rules

The PATH Act of 2015 contains a provision (in Section 202) that apparently provides a way to give holiday or birthday gift cards of $25 or less to employees without including the value of those gift cards in the employee’s Form W-2 compensation.

From the PATH Act of 2015, Section 202.

SEC. 202. SAFE HARBOR FOR DE MINIMIS ERRORS ON INFORMATION RETURNS AND PAYEE STATEMENTS.

(a) IN GENERAL.-Section 6721(c) is amended by adding at the end the following new paragraph:

“(3) SAFE HARBOR FOR CERTAIN DE MINIMIS ERRORS.-

“(A) IN GENERAL.-If, with respect to an information return filed with the Secretary-

“(i) there are 1 or more failures described in subsection (a)(2)(B) relating to an incorrect dollar amount,

“(ii) no single amount in error differs from the correct amount by more than $100, and

“(iii) no single amount reported for tax withheld on any information return differs from the correct amount by more than $25, then no correction shall be required and, for purposes of this section, such return shall be treated as having been filed with all of the correct required information.”

[Section 202 goes on – and on! – with codicils and legalese, but (a) above gives the gist of it.]

This is my favorite tax “thing” in years! It rivals Revenue Ruling 2007-41 (which I believe is the best thing the IRS has ever produced!). Note that it may be advisable to keep the gift card values under $25 to allow “room” for other, inadvertent errors (i.e. rounding, etc.) that could occur in Form W-2 processing.

Bottom Line

The IRS and Congress did not seem inclined to intervene directly and give us what we have doggedly asked for – some type of announcement, advice, or ruling allowing, say, up to $25 in gift cards given to employees, that would not be taxable to them. However, intentionally or not, they have given us that precise gift! The PATH Act of 2015, in Section 202, effectively allows us to give employees up to $25 each year in gifts cards without reporting the value of that generous gift on the employee’s Form W-2. Note that this is not equivalent to the rules regarding a $25 limit on business gifts.

It makes sense to touch base with a qualified tax advisor on these items. He or she will be able to help you navigate which ones may affect your school.

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.