Understanding the Tax Implications of Employee Gifting: A Guide for Rewards and Recognition Gifting Programs in the USA
Many companies incorporate gifting as part of their Rewards and Recognition programs. If your company does or is considering a gifting program, it’s important to understand the tax implications of employee gifting.
In general, the rules for the taxable treatment of gifts given to employees are set by the Internal Revenue Service (IRS) at the federal level. However, some states may have their own rules regarding the taxable treatment of gift cards.
If the gift is tangible personal property, such as a gift basket or other merchandise (this includes company swag), it is generally taxable to the employee if its value exceeds $75. The employer must include the value of the gift in the employee's wages and withhold appropriate taxes.
Some other examples of taxable gifts that should be included in the employees W2 according to the IRS’s administrative policy:
Gifts of Cash or Cash Equivalents: Cash gifts, including gift cards or checks, are always considered taxable income for the employee. The employer must include the value of the gift in the employee's wages and withhold appropriate taxes.
Gifts of Services or Facilities: If the gift is a service, such as a massage or tickets to a sporting event, it is taxable to the employee if its value exceeds $75 USD. The employer must include the value of the gift in the employee's wages and withhold appropriate taxes.
De Minimis Benefits: There is an exception to the above rules for de minimis benefits, which are small gifts or perks provided by the employer that have a minimal value. These benefits are not considered taxable income for the employee and do not need to be reported on the employee's tax return. Examples of de minimis benefits include occasional meals, flowers, or small holiday gifts.
Gift cards given to employees as a reward or bonus are generally considered taxable income in the United States. However, there are a few exceptions, including gift cards given as part of a promotion or contest, or as part of a qualified employee achievement award. Employers should be aware of these rules and ensure that they are following them when giving gift cards to their employees.
For companies and HR leaders, it’s important for both employers and employees to understand the different types of employee gifts and their tax implications. By understanding these rules, both parties can ensure they are complying with and avoid potential issues with the IRS.
Giftagram provides clients a year end report of gift values provided to each employee in order to facilitate the inclusion of appropriate amounts on the employees W-2 form. Giftagram’s platform can also help companies manage limits by team and individual to help operate within the taxable limits of the jurisdictions.
For information on tax implications for Canadian employees, click here.
This article should not be relied on as tax advice and individuals and companies should consult with a tax professional or refer to the state's tax agency website.