With the holiday season approaching, we’re all getting into the giving spirit. This is definitely my favorite time of the year.
What a great time to consider showing your staff members just how much you appreciate their work and dedication. But what about those gifts and what are the tax implications of gifts to employees. Here are some things to keep in mind.
I got asked the other day about how to handle a cash bonus to the staff and whether or not those gifts need to be taxed as income.
The answer for your staff members and cash gifts is yes, they do need to be taxed as income to the individual.
But what about a gift card, doesn’t that fall under the de minimus fringe gift rule? Actually No, according the IRS section 132 (e)(1) of the Tax Code a de minimus fringe gift is defined as “any property or service the value of which is so small as to make accounting for it unreasonable and administratively unpractical.”
A gift card, no matter what the amount, will need to be purchased using some form of cash transaction from the church. Therefore, that cash will need to be accounted for making that gift ineligible under this rule.
Here are some ideas on gifts and how to handle it:
– Church approved cash bonus to each employee. The amount of the gift would need to be reported on the W-2 and have taxes withheld. Your payroll administrator could gross up the amount so they net the value you’d like them to receive.
– The church provides each employee with a small, novelty gift which they spend around $20 each. This would fall under the de minimus fringe benift rule and would not need to be reported since the item itself to the recipient would not have a measurable value.
– The church provides each employee with a $20 gift card. Since the value can be measured (i.e. $20), this would be considered a taxable gift.
– Church takes the employees out to dinner. The IRS allows “group meals or picnics for employees and their guests” as a nontaxable de minimus fringe benefit.
– The church provides a $20 gift card to their volunteer, NON PAYROLL staff. This would need not be reported as taxable income because the volunteers are not employees. Additionally, a 1099 would not need to be generated as long as the yearly amount is less than $600 to the individual.
For more information, give us a call or send an email. We’d be happy to help you manage your church finances and position your ministry for success financially.