What gifts to employees are not taxable?
Nontaxable gifts: Fruit baskets, hams, turkeys, wine, flowers and occasional entertainment tickets, such as for a show or sporting event, generally are nontaxable de minimis fringes. Taxable gifts: Gift certificates (cash in kind) are wages subject to taxes -- even for a de minimis item.
- Employee-of-the-month parking.
- Occasional award or holiday dinners.
- Occasional coffee, donuts, and snacks.
- Group term life insurance.
- Achievement awards and plaques, coffee mugs, flowers, and other small gifts.
There are a few categories that, in general, are not subject to gift taxes, including: Tuition paid directly to a college. Medical bills paid directly to a care provider. Gifts to your spouse.
Giving Gift Cards to Your Employees
You might think you can give your employees a gift card or certificate for under $25 without any tax issue, but gift cards given to employees in any amount count as taxable income and must be reported on Form W-2.
Well, the IRS updates them annually. For the 2024 tax year, you can give up to $18,000 to any individual over the course of the year without having to report it to the IRS. This limit is up from $17,000 in 2023. The lifetime gift tax exclusion is $13.61 million for the 2024 tax year.
Offering gift certificates is a great way to boost employee engagement and show your staff your appreciation. But, you must report them on an employee's Form W-2 as supplemental wages and withhold federal taxes according to IRS regulations.
Cash gifts of any amount are wages subject to all taxes and withholding. Gifts Under $25: Gifts under $25 are typically tax-exempt. Noncash prizes. Include the fair market value in wages subject to taxes.
One can gift a car to someone, and as long as the vehicle's value is $14,999 or less, the recipient won't need to pay a gift tax to the IRS to receive it. However, your employee may still be on the hook to transfer title, tags, pay the insurance, and so on.
Generally, the answer to “do I have to pay taxes on a gift?” is this: the person receiving a gift typically does not have to pay gift tax. The giver, however, will generally file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $17,000 per recipient for 2023.
Whether you send gift cards to full-time employees or independent contractors, the IRS considers gift cards to be cash equivalent. As a result, gift cards from employers sent as a holiday gift or a gesture of appreciation are included under the umbrella of taxable income.
How to avoid gift tax?
- Respect the annual gift tax limit. ...
- Take advantage of the lifetime gift tax exclusion. ...
- Spread a gift out between years. ...
- Leverage marriage in giving gifts. ...
- Provide a gift directly for medical expenses. ...
- Provide a gift directly for education expenses. ...
- Consider gifting appreciated assets.
Unless you have gifted more than $12.92 million over your lifetime, you can almost certainly give a $50,000 down payment to your daughter or other family member and not owe gift taxes in 2023. Just be careful to do the paperwork right, otherwise, it could complicate the loan.
As the recipient, you're not required to report the gift as income, and it should not affect your taxes. Depositing the check into your bank account is straightforward. The bank may report large deposits to the IRS as a matter of policy, but this is to prevent money laundering and not about taxing gifts.
The gift tax is a federal tax imposed by the Internal Revenue Service (IRS) on taxpayers who transfer money or property to someone else without receiving anything of substantial value. A gift can include cash, real estate, and other forms of property.
The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift. However, form 709 is not the only way the IRS will know about a gift.
- Gifts that are not more than the annual exclusion for the calendar year.
- Tuition or medical expenses you pay for someone (the educational and medical exclusions).
- Gifts to your spouse.
- Gifts to a political organization for its use.
You still can't give employees cash or cash-equivalent gift cards tax-free, but you can give much more valuable physical gifts (up to $1,600 fair-market-value in gifts per employee per year) without tax obligations. To do so, employers must meet strict requirements that the IRS documents in their Fringe Benefit Guide.
Bonuses may be made to employees in a number of different ways from company stock and ownership, through their paychecks, or in cash. Any bonus, whether it's in cash or in kind, is seen as a token of gratitude from the employer for a job well done.
As a general rule, the IRS considers employee holiday gifts “de minimis benefits,” as long as those gifts aren't too lavish. That means your employees don't have to pay federal income taxes on their gifts, and you can deduct the value of those gifts as non-wage business expenses on your federal taxes.
Annual gift tax exclusion
The gift tax limit is $17,000 in 2023 and $18,000 in 2024. Note that this annual exclusion is per gift recipient. So you could give away the limit to several different people in a single year and still not have to file a gift tax return and possibly pay the gift tax.
Why do employers give gift cards instead of cash?
Why? Employees enjoy an outside-of-work “treat,” rather than money, which, since it's included on their paycheck, often ends up going to pay for bills or essentials. When you receive a digital gift card, you can use it to buy something you might not normally have purchased, making it feel more like a special gift.
Gift cards are considered cash equivalent items and must be reported as taxable income. They fall under the category of cash equivalent fringe benefits, which means their value must be included in an employee's wages and may be subject to withholding for Social Security and Medicare Tax.
A car allowance is taxable unless you substantiate business use of the payment. You can avoid taxation if you track business mileage and demonstrate that the allowance never exceeds the equivalent of the IRS business mileage rate ($. 67 per mile for 2024). This is called a mileage allowance or mileage substantiation.
A reliable rule of thumb regarding workplace gift giving: Gifts should flow down the supervisory reporting line, not upward. Thus, a boss or manager may give presents to direct reports, and employees can laterally exchange gifts with each other.
Share: Gifts to individuals are not tax-deductible. Tax-deductible gifts only apply to contributions you make to qualified organizations. Depending on how much money you are gifting to your adult child, you may have to pay a federal gift tax.
