We’re in the midst of the holiday season, and many companies provide extra goodies to employees at this time of the year. Don’t forget that what seems like a gift may actually be considered compensation by the IRS.
IRS Publication 15-B goes into great detail about the kinds of fringe benefits that are taxable and those which are not. If you provide any sort of cash or cash equivalent (such as a holiday bonus or gift card), it is always taxable. Holiday gifts other than cash that have a low fair market value can be excluded from tax as long as they’re de minimis – they have so little value that accounting for them would be unreasonable or administratively impractical.
Also excludable are occasional parties for employees, occasional tickets for theater or sporting events, and occasional personal use of a company copying machine. Do you get the idea that the word “occasional” is important? In determining whether a perk is taxable, consider how frequently you provide these types of benefits.
Any taxable benefits should be reported on Form W-2 for the year in which it was provided, so it’s important to report those amounts to your payroll provider before the end of the year.
If you have questions on taxable benefits, give us a call or contact your tax adviser.