ISSUE

You CAN give holiday gifts – including turkeys and/or hams – to employees.  However, you should be aware of several issues that could make holiday gifts taxable – thus includable in your employees’ Form W-2.

 

 

SITUATION

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

IBCS’s CFO calls us to ask for advice on their planned employee holiday gifts.  She tells us that IBCS is planning to give each employee a turkey on the Tuesday prior to Thanksgiving and then a $25 gift card on December 20.

We tell her that the turkeys should be a non-taxable gift to the employees, but that IBCS will have to include the Christmas gift cards in employee compensation.

“Okay,” she says, “but what about that de minimis rule Congress came out with a few years ago?”

“The IRS interpreted that to mean that it was only for ‘inadvertent errors.’”

“Bummer,” says she.

“Bummer,” we agree.

But the turkeys (or other holiday gifts) – not gift cards with a specific amount, should be fine.

 

RULES

From Revenue Ruling 59-58:
“It is accordingly held that the value of a turkey, ham, or other item of merchandise of similar nominal value, distributed by an employer to an employee at Christmas, or a comparable holiday, as part of a general distribution to employees engaged in the business of the employer as a means of promoting their good will, does not constitute wages subject to income tax withholding or wages for Federal Insurance Contributions Act or Federal Unemployment Tax Act purposes.”

“…The foregoing rules will not apply to distributions of cash, gift certificates, and similar items of readily convertible cash value, regardless of the amount involved.”

From 2017 Form 990, Part IX Instructions:
Line 9. Other employee benefits. Enter contributions by the filing organization, common paymasters, and payroll/reporting agents to the filing organization’s employee benefit programs (such as insurance, health, and welfare programs that are not an incidental part of a pension plan included on line 8), and the cost of other employee benefits.
For example, report expenses for employee events such as a picnic or holiday party on line 9. Do not include contributions on behalf of current or former officers, directors, trustees, key employees or other persons that were included on line 5 or 6.

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

  • We wish everyone a Happy Thanksgiving and please know that we are very grateful for you and your institutions!
  • Be sure you are knowledgeable about the “ins-and-outs” of holiday gift giving – in order to keep things “non-taxable.”
  • Remember that gift cards are generally going to be taxable and includable in employees’ compensation.
  • Check out our “Tax Tips” archives for more information on employee gifts.

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.

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