Giving your employees bonuses or gifts is often considered a way to spread cheer and thanks during the holiday season.
A holiday bonus could lessen employee financial stress during this busy time. But monetary gifts aren’t the only way to show your appreciation – don’t forget about personal thank you notes, celebratory events, team-building activities, time off, company swag, and more.
If you are looking to provide a holiday gift to your employees, it is important understand some of the implications these gifts may have – on you as the employer and on the individual employees.
Choosing A Holiday Gift
For both monetary and non-monetary gifts, consider the following when choosing what to give your employees:
- Don’t make it tied to performance – that would be an earned reward versus a gift.
- When choosing a gift, consider your employees – their preferences, what they have appreciated in the past, the gestures they find meaningful, what motivates them. Also keep in mind your company culture – is the gift in line with the culture you’ve developed?
- Prevent discrimination. For example, if you’re giving cash or gift cards, give everyone the same amount or adjust it based only on employee position.
- Avoid gifts that could be seen as inappropriate or overly personal.
- If managers are deciding on gifts for their team, educate them on these items. Cash may seem impersonal and having managers involved could help to pick out items more in-tune with each employee, but make sure to provide them guidelines on appropriate spending and gift choices.
- With all gift choices, consider the tax implications as discussed below.
De Minimis Fringe Benefits
In limited cases, there are gifts that may not have any tax implications – those that meet the de minimis fringe benefit criteria as outlined by the IRS.
According to the IRS, “In general, a de minimis benefit is one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.” But there is no clear dollar limit for de minimis gifts. If your gift qualifies for exclusion, it doesn’t require any reporting.
For example, if you give employees a ham or turkey at the holidays, or a voucher specifically for that item, it would likely be considered de minimis. But if you give your employees a ham every month, the increased frequency of the gift would prevent it from being deemed de minimis.
Other Holiday Gifts
If the gift you’re considering does not meet the de minimis criteria, it will likely be subject to income and employment taxes and can even impact your overtime calculations.
For holiday or year-end bonuses, they are not necessarily the same. A holiday bonus is often considered a discretionary reward – a gesture of gratitude, a surprise to the employee, at the sole discretion of the employer to award it. Whereas a year-end bonus is often tied to performance and considered non-discretionary. For any monetary bonus, the bonus amount must be reported as taxable income on an employee’s W-2 form. Additionally, non-discretionary bonuses are included when calculating regular rate of pay for overtime.
If you provide a holiday gift in the form of cash or a cash equivalent, the gift is taxable – regardless of the amount. Cash equivalents include: gift cards, gift certificates, prepaid cards, debit cards, or similar cards/devices – given as a physical card or electronically. Often employers incorrectly treat these as de minimis fringe benefits, as discussed above.
For non-cash gifts that do not meet the de minimis criteria, consider the fair market value to determine the taxable wage.
Before sharing holiday cheer with your employees through gifts or bonuses, make sure you understand how to account for these gifts in payroll and the possible tax implications.