2024 Year-End Guide: Gifts
October 28, 2024
criteria:
- Tracking the value would be administratively burdensome
- The gift is given occasionally rather than regularly
- The purpose is to boost employee morale, wellness, or productivity
Common Gift Categories and Their Tax Status
Physical Merchandise
- Items like holiday hams or turkeys
- Generally non-taxable
- Considered de minimis fringe benefits
Gift Cards and Certificates
- Always taxable regardless of amount
- Treated as cash equivalents
- Must be included in employee wages
Holiday Bonuses
- Taxable when given as percentage of salary
- Tax status not affected by:
- Quality of work
- Length of service
- Performance metrics
Prize Drawings
- Winnings from company raffles or drawings
- Fully taxable to winning employees
- Must be reported as income
Processing Gift Values in Payroll
Two main approaches for handling taxable gifts:
- Integration with Regular Payroll
- Add gift value to normal paycheck
- Apply standard tax withholdings
- May reduce employee’s take-home pay
- Separate Gift Processing
- Process gift independently
- Consider “grossing up” to cover employee’s tax burden
- Prevents reduction in regular pay
W-2 Reporting Requirements
Taxable gifts must appear in these W-2 boxes:
- Box 1 (Federal wages)
- Box 3 (Social Security wages)
- Box 5 (Medicare wages)
- Box 16 (State wages)
- Box 18 (Local wages)
Remember to properly document all gifts for accurate year-end reporting and compliance with tax regulations. Payroll compliance services can streamline the processing and reporting of employee gifts while ensuring proper tax treatment and documentation.
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