ISSUE:

Although actual turkeys and hams given to employees are generally non-taxable, holiday gift cards are another story.

 

SITUATION:

Idaho Bible College & Seminary (IBCS) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(i).  They are not required to file Form 990 annually.

Every Thanksgiving, the President of the seminary presents each employee with a $20 grocery store gift card to say “Thank You” and help out with their family’s feast.

Sheila, the CFO at IBCS follows “Tax Tips.” She calls to say that she reviewed the 11/16/16 edition and now wonders whether or not the value of these gift cards should be included on the employee’s W-2 each year.  She says, “It seems like the 2015 PATH Act’s “safe harbor” would allow us to omit the $20 gift card value from each employee’s 2017 Form W-2.”

We tell her that last Thanksgiving we thought that the PATH Act safe harbor might allow for a “de mininis” gift card (under $25) to be inherently nontaxable to employees.  However, although it appeared that the PATH Act safe harbor might be of help in this area, the IRS clarified in early 2017 that the safe harbor “applies only to inadvertent errors” and thus “known” gift cards must be reported on Form W-2 each year.

RULES:

From IRS Notice 2017-9, Sec. 3.04:

Scope of the safe harbor. The de minimis error safe harbor applies only to inadvertent errors on a filed information return or furnished payee statement. A payor that intentionally misreports a dollar amount on an information return or payee statement, whether or not the amount otherwise qualifies as de minimis, falls under the intentional disregard provisions of Code Sec. 6721(e) and Code Sec. 6722(e), and, therefore the de minimis error safe harbor does not apply. A pattern of non-compliance may indicate an intentional disregard for purposes of the penalties. Additionally, the de minimis error safe harbor doesn’t apply to a failure to file or furnish an information return or payee statement, even if the payee statement or information return would report dollar amounts of $100 or less (or $25 or less with respect to any amount of tax withheld). [Underline added.]

BOTTOM LINE:

  • Many institutions give holidays gifts to employees.
  • Low cost gifts that do not contain a dollar value (turkeys, hams, etc.) may be nontaxable to the recipient employee.
  • It appeared that the 2015 PATH Act allowed for a “de minimis” gift card or cash value gift that could be considered nontaxable.
  • The IRS clarified that gift cards with a stated cash value are taxable to the employee.
  • We are not sure that is what Congress intended, but the IRS has spoken.

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.