Staff gifts are nice and most organizations give their staff a gift for Christmas or Thanksgiving. However...before you write that check or buy that turkey there are some facts regarding the tax consequences of those gifts you should know.
A reader asked me the other day if they could give a $25 gift card to each of their staff.
I responded that yes...they could give a gift card to their employees; however, the $25 would have to be added to their W-2 as it was taxable income.
They responded that they thought the gift cards would fall under the category of being a nontaxable de minimis fringe benefit.
I told them to research IRS section 132 (e)(1) of the tax code which defines a de minimis fringe benefit as “any property or service the value which is so small as to make accounting for it unreasonable or administratively impracticable.”
The IRS decided that cash can never be a de minimis fringe benefit since it is not unreasonable or administratively impracticable to account for its value. The same thing goes for cash equivalents such as gift certificates or gift cards.
Since the IRS concludes that de minimis fringe benefits in section 132 refer only to “property or services” and not cash, some examples of this type of fringe benefit would include coffee, doughnuts, soft drinks, flowers, fruit, turkey, or ham.
The Church Accounting: How To Guide devotes a whole section of the book to payroll for churches. It covers payroll terminology and forms and then takes you through the steps necessary to set up a payroll, calculate and file the necessary taxes and forms, and even details how to handle the minister's payroll. It also includes sections on filling out IRS forms: 1099 and 1096.
If you have QuickBooks or are considering using it in the future, go ahead and purchase the QuickBooks for Churches and the How To Guide combo for a complete package on setting up and administering a payroll using QuickBooks.
So if you’re looking for a holiday gift to give to your well deserving employees or volunteer staff...a turkey, ham, or fruit basket may be a better option if you are looking for a nontaxable gift to bless them with.
Understand I’m not saying you cannot give a cash gift to your employees for the holidays. Just know that it will have to be included in their taxable income.
For more details on staff gift rules, please research IRS Letter Ruling 200437030.
See more details on staff gifts and love offerings.
Richard Hammer, J.D., LL.M, CPA author of Church and Clergy Tax Guide