The best way to give gifts to your employees

Showing appreciation to your employees for their dedication and hard work is vital within a company. It’s a key factor in employee morale, which is important for the ongoing success of your organization.

But how does an employer know whether a gift to an employee is taxable? This is where de minimis comes in to play, which roughly translates to “about minimal things.” Under this concept, an employer can do something for an employee-such as a small gesture of appreciation-without it being taxable.

For instance, if you gave $5 Sonic gift cards for the first three people who made a suggestion on improving the parking lot, that likely would not be taxable. It’s a small way to show appreciation and have fun, but it’s not considered a cash equivalent.

However, using larger or frequent cash gifts can get you into trouble quickly. Giving out cash to employees adds up, and the total amount must be tracked and taxed. For instance, I had one experience where a boss wanted to give all employees cash to buy their turkey for the holidays. The company made the wise decisions to instead buy the turkeys and hand them out. Although that took more time, giving the employees cash would require completing a W2.

If you’re debating whether to give a tangible gift versus cash, you’re usually best to go with the actual gift and not the cash.

Gym memberships are another place where the question of taxable income comes into play. It’s not a traditional gift, but it is an employee perk. An on-site fitness center can be a huge benefit for employees, and a lot of larger companies are offering that as an option. If the gym is on-site and available for all to use, it counts as a company expense. In contrast, if you paid for an outside gym membership for employees, then it becomes taxable income.

Some other things that are included in de minimus are:

  • Occasional use of the photocopier
  • Occasional snacks, coffee, doughnuts, etc.
  • Occasional tickets for entertainment
  • Holiday gifts
  • Flowers, fruit, books, etc., under special circumstance

The idea is to take care of your employees who work hard for the company and keep morale up while being financially responsible for the well-being of the company. Make sure you think ahead about employee gifts and the potential tax impact.

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