The Holidays are Upon Us and for Payroll That Could Mean Taxing Gifts

‘Tis the season for celebrating.  Office holiday parties, year end bonuses and most of all gifts from the company.  Maybe a $25 gift card to help with the holiday dinner or a nice ham or turkey.  The idea of getting something from the boss is a joyous and wonderful idea for most American workers.  But to payroll, the giving of gifts to employees means only one thing, the annual argument over taxation!

The Internal Revenue Code (IRC) requires that any payment made to an employee that is cash or the cash equivalent is taxable wages to the employee.  As stated on the IRS website “Cash or cash equivalent items provided by the employer are never excludable from income… Gift certificates that are redeemable for general merchandise or have a cash equivalent value are not de minimis benefits and are taxable.”

Unfortunately payroll gets to play “The Grinch” when it comes to taxing gift certificates.  But what about an actual ham or turkey or other such item?  Do we have to tax that as well?  On that one we get to play Santa!  No taxation is required on holiday gifts with a low fair market value such as a ham or turkey.

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