Quick answer: there’s a difference, but we need a longer explanation for that.
According to the IRS, cash or cash equivalent items provided by the employer are generally taxable and cannot be excluded from income. However, there is an exception for occasional meal money or transportation fare to help employees work beyond normal hours.
Gift certificates that can be redeemed for general merchandise or have a cash equivalent value are also taxable. This means that the $50 Amazon gift card your employer gives you is taxable to you but deductible for your employer. On the other hand, gifts like flowers, turkeys, or cheese spreads are not taxable to you and not deductible for your employer.
Understanding these rules can help explain why companies often choose to offer cash or cash equivalent gifts.
What is a de minimis benefit?
De minimis benefits are those small enough that it’s impractical to account for them. They can include:
- Occasional use of the photocopier
- Snacks, coffee, doughnuts, etc.
- Tickets for entertainment events
- Holiday gifts
- Occasional meal money or transportation expenses for working overtime
- Group-term life insurance for employee spouse or dependent with a face value not more than $2,000
- Flowers, fruit, books, etc., provided under special circumstances
- Personal use of a cell phone provided by an employer primarily for business purposes
When deciding if a benefit is de minimis, it’s important to consider how often it occurs and its value. A key aspect of de minimis benefits is that they’re infrequent or unusual. They also shouldn’t be a form of disguised compensation.
Whether something qualifies as de minimis depends on the specific situation. If a benefit is too significant to be considered de minimis, the entire value is taxable to the employee, not just the excess over a certain amount. The IRS has previously determined that items valued over $100 could not be considered de minimis, even in unique situations.
Cash Benefits
Cash is typically given as wages and usually doesn’t require any additional administrative work to account for. As such, cash cannot be considered a de minimis fringe benefit. There is an exception for occasional meal or transportation money to help employees work overtime. This benefit must be provided when an employee works an unusual or extended schedule. However, it cannot be excluded for regular scheduled hours, even if they include overtime. The employee must actually work the overtime.
Meal money calculated based on the number of hours worked is not considered de minimis and is taxable wages.
Gift certificates
Cash or cash equivalent items provided by the employer are generally not excluded from income. However, there is an exception for occasional meal money or transportation fare to help employees work beyond normal hours.
Gift certificates that can be redeemed for general merchandise or have a cash equivalent value are not considered de minimis benefits and are taxable.
A certificate that allows an employee to receive a specific item of personal property that is of minimal value, provided infrequently, and is administratively impractical to account for, may be excluded as a de minimis benefit, depending on the specific facts and circumstances.
Achievement awards
Special rules apply to allow exclusion from employee wages of certain employee achievement awards of tangible personal property given for length of service or safety. These awards:
- Cannot be disguised wages
- Must be awarded as part of a meaningful presentation
- Cannot be cash, cash equivalent, vacation, meals, lodging, theater or sports tickets, or securities.
In addition, there are other requirements specific to achievement and safety awards and there are dollar limitations that must be met. See this IRS publication for more information.
How to Handle Taxable Benefits:
- Excluded Benefits: If the benefits can be excluded from taxes, you don’t need to report them.
- Taxable Benefits: If the benefits are taxable, include them in wages on Form W-2 and withhold income taxes. If employees are covered for Social Security and Medicare, withhold taxes for these as well. You can also report this information in box 14 of Form W-2.
General Guide on Gifts:
- Nontaxable Gifts: Things like fruit baskets, hams, turkeys, wine, flowers, and occasional entertainment tickets (like for a show or game) are usually considered nontaxable small perks.
- Taxable Gifts: Gift certificates (including those for small items) are treated as taxable wages. For instance, a gift certificate for a turkey is taxable, even though the turkey itself wouldn’t be. Cash gifts of any amount are also considered wages subject to all taxes and withholding.
- Gifts Under $25: Gifts valued at under $25 are typically not subject to taxes.
- Noncash Prizes: If you win a noncash prize, the fair market value of the prize is considered part of your taxable wages.
- Holiday (or Any) Parties: The cost of occasional parties is usually not taxable for employees and their families. These events should be infrequent and aimed at promoting employee health, happiness, or efficiency. Examples include occasional holiday parties, cocktail parties, and company picnics. These costs are fully deductible for the business and not subject to the 50 percent limit on business meal deductions.
- Charitable Donations on Behalf of Employees: If your employer makes a charitable donation on your behalf, it may have tax implications for you.
All in all, when deciding whether to take a gift or not, our advice is …. it depends. Does the gift sell value higher than the tax payable? Does receiving it would propel you to an undesirable higher tax bracket? Is it difficult to store or use? Do you need it? Lastly, but also importantly: do you want it?