Gifts awarded for length of service or security achievement are not taxable, as long as they are not cash, gift certificates, or points redeemable for merchandise. According to the Internal Revenue Service, gift tax applies only to individuals, that is, individuals. Corporations don't pay taxes on gifts, or other entities, such as corporations, estates, or trusts. However, if a corporation makes a donation that qualifies for the tax, someone still has to pay the tax.
As a general rule, an employer can't really give you a gift under the tax code. With just a couple of exceptions, the IRS considers anything your employer gives you taxable compensation for your services. Why? There's a simple reason for that. If your employer were allowed to give you a gift, you could reclassify your salary as a gift and you wouldn't have to pay any taxes for it.
Your employer may have to pay gift tax, but you would avoid payroll taxes that employers have to pay on wages. The general rule of thumb is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are generally tax-free.
According to the IRS, gift certificates that can be exchanged for general merchandise or have a cash equivalent value are not de minimis and taxable, but rather a certificate that “allows an employee to receive a specific item of personal property that has a minimum value, is provided infrequently and is administratively impractical to account for, may be excluded as a de minimis benefit, depending on the facts and circumstances. If you give gifts to a select group of a company, the gifts are considered to be given to individuals within that group. Section 102 (c), however, provides that the gift exclusion does not apply to “any amount transferred by or for an employer to, or for the benefit of, an employee. That said, the tax code allows employers to give de minimis gifts, things that are small and cheap enough to make it unreasonable or administratively impracticable to expect them to account for it as compensation.
Cash equivalent (such as a supplemental benefit provided to an employee through the use of a gift certificate, charge, or credit card) generally cannot be excluded as a de minimis supplemental benefit, even if the same property or service purchased would be excludable as a supplemental benefit from Minimis. Form 4506-T has several uses and special care should be taken when filling out the form for a gift tax inquiry. However, this rule is occasionally forgotten when it comes to giving gifts or prizes on company holiday parties. One possible exception can be found in the informal IRS guidance, described below, according to which gift certificates would be considered property because they specifically convey the right to receive a ham.
The prize must be an item of “tangible personal property” and not include cash, a gift certificate or other cash equivalent item. Tax law is silent on how to divide liability, as corporations generally don't give taxable gifts. Finally, individuals who make donations as part of their overall estate and financial plan often enlist the services of lawyers and CPA, EA, and other professionals. At this time of year, it is common for companies to give thank-you gifts to their customers, employees, and other business entities and associates.
While there may be limited situations where the value of a gift card or gift certificate could be excluded from an employee's income, employers might want to take a conservative stance and include the value of all gift cards and gift certificates in employee salaries. .
