**ALERT** Be sure that you include the amounts of gift cards – given to employees during the year – as compensation on Form W-2. The IRS has clarified that the “inadvertent error” section of the 2015 PATH Act does not apply to amounts that are known to the employer.
Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii). They are required to file Form 990 annually.
As they are preparing employee Form W-2s for 2016 (with forms due to the employee AND the IRS on 1/31/17 this year), TBC’s Controller calls to ask about where things stand with respect to reporting gift cards on Form W-2. TBC has historically given employees in the accounting department $20 Nile Books gift cards for their birthdays. TBC has considered these birthday presents as a de minimis fringe benefit for these employees. The folks at TBC follow “Tax Tips” and wonder whether or not the value of these gift cards should be included on the employee’s W-2 each year. They are not sure whether the 2015 PATH Act’s “safe harbor” would allow them to omit the $20 gift card value from the 2016 Form W-2s.
We answer “NO”. Although it appeared that the PATH Act safe harbor might be of help in this area, the IRS just clarified that the safe harbor “applies only to inadvertent errors” and thus “known” gift cards must be reported on Form W-2 each year.
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.]
With this IRS clarification, you should ensure that the amounts of gift cards, given to employees for birthdays, holidays, etc., are included in Form W-2 – unless they meet one of the exceptions. Check this out with your skilled, knowledgeable, and experience tax advisor. He or she will be able to help your school navigate the intricacies of the reporting requirements.
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.