With the holiday season approaching, many businesses are considering how to show appreciation to their employees. While thoughtful gestures like gift cards, holiday parties, or personalized presents can boost morale, it’s essential to understand their tax implications. Depending on what you give, the IRS may classify your gift as taxable income to your employees.
Gift cards are always considered taxable income, regardless of the amount, because the IRS views them as equivalent to cash. Gift items like a company-branded mug or a holiday fruit basket may qualify as non-taxable as they are given occasionally and are relatively low in value.
Bonuses—while appreciated—are always considered taxable income, so it’s essential to plan for withholding when issuing them.
A popular option to reward your team and boost morale is to host a holiday party. Expenses for this type of event are generally non-taxable to employees since the event is infrequent and primarily for the benefit of the team.
Our tax and accounting professionals are here to help businesses navigate these IRS guidelines as they seek to show gratitude to their hard-working employees at the holidays and throughout the year.