HomenewsUncategorizedHoliday Gifts, Prizes, or Parties can be taxable wages

Holiday Gifts, Prizes, or Parties can be taxable wages

  • December 10, 2018
  • Posted by: alaaalhajissa
  • Category: Uncategorized
13 Comments

The tax implication of employers’ holiday parties, prizes or gift-giving is one of the most recurring challenges employers face at the year-end at virtually all workplaces. Here is some tax rule every employer should know of if they are working towards appreciating their employees with gifts, prizes, and parties at this holiday season.

​The first of all rules is the general tax rule under the Internal Revenue Code Section 61, which states that; “all forms of compensation are subject to income tax unless specifically excluded by the tax code.” Although, this rule is mostly ignored by employers when giving gifts, or prizes at companies’ holiday parties. Some employers do not see gifts, prizes, and parties as a means of compensating their employee for their past labor and their future commitment. While some ignorantly believe that the gross income tax code Section 102 (a) excluded gifts and prizes.

​The first of all rules is the general tax rule under the Internal Revenue Code Section 61, which states that; “all forms of compensation are subject to income tax unless specifically excluded by the tax code.” Although, this rule is mostly ignored by employers when giving gifts, or prizes at companies’ holiday parties. Some employers do not see gifts, prizes, and parties as a means of compensating their employee for their past labor and their future commitment. While some ignorantly believe that the gross income tax code Section 102 (a) excluded gifts and prizes.

However, Section 102 (c) of the gross income tax code, provides that; the exclusion of prizes and gifts has nothing to do with whatever amount an employer transfers to or concerning the benefits of an employee. But when a gift is given to an employee by an employer, it is therefore taxable under this Section 102 (c), except an exception is attached to it.

The basic exception to the rule that binds holiday gifts, prizes, and parties to taxes can be seen under the code section 132 (a)(4) – this code excludes some certain gifts and prizes from taxable income. This section provides that gross income excludes any fringe benefits, and thus qualifies gifts, prizes, and or parties as a de minimis fringe benefit. Also, Section 132 (e)(1) states de minimis fringe benefit as any property or service, the value of which is so minute as to make accounting for it unreasonably or administratively impracticable. To identify items that fall to the category of de minimis, the rate with which similar items have been provided to the employee by the employer should be put into consideration.

Department of the Treasury’s regulations Section 1.132-6(e)(1) of the United States gave examples of items that are tax excludable from employee’s gross income. Examples of such items that are tax excludable are as follows;
​
•    Local telephone calls.
•    Traditional birthday gift.
•    A holiday gift of items and not cash.
•    Turkeys, ham, and other items of nominal value at Christmas and other holidays.
•    Occasional sporting event tickets.
•    Occasional private utilization of the employer’s photocopying machine by an employee.
•    Giving of doughnuts, soft drink, and other snack materials to the employee by the employer.
•    Irregular cocktail parties, meals, and seasonal hangout for employees by their employers.
•    Giving of flowers, books, and other similar items to employees at special situations. 
 
While, Department of the Treasury’s regulations Section 1.132-6(e)(2) of the United States gave examples of items that are not tax excludable, and will be included in employee’s gross income. Examples of items that are not excludable from employee’s gross income include;

•    The use of leased or owned properties of an employer by an employee.
•    Tickets to events and sporting centers.
•    Membership in an athletic facility or a private country club.
•    Cash, gift certificate, or similar items that may easily be exchanged for cash.

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