COMPLIANCE
M ost employees don’t pay much attention to the potential taxable income implications of company-purchased ‘gifts’, especially when the amounts are small or the items are non-cash. The innocence of giving employees that $10 gift card for a trendy coffee shop seems too insignificant an amount to warrant any action beyond distributing the card to the recipients. Likewise, the company-purchased smart headphones won in a raffle may not raise concerns about taxability for the lucky winner. Yet, ignoring these potentially taxable events, regardless of how small or intangible, is a mistake. It’s also a challenge for the payroll tax function, who must properly account for these taxable income occurrences. The payroll tax function ensures the proper reporting of taxation on cash / cash equivalent gifting (like that $10 gift card), along with non- cash gifts which exceed de minimis values (like those headphones with a fair market value of $300). Let’s first understand the stakes involved with tax on gifts under current Internal Revenue Service (IRS) guidelines: 1. Any cash / cash equivalent gift, paid for by a company and given to an employee, is taxable income, regardless of the amount. Consider the leader who purchases a bunch of gift cards on their corporate credit card to keep on hand for the purpose of distributing to employees as they see fit. The moment the gift cards are distributed to employees, there’s an obligation to report them as taxable income for whoever receives the gift card, regardless of the amount. The takeaway here is that all cash / cash equivalent gifts must be reported as taxable income. 2. There’s a bit more wiggle room around what must be reported as taxable income for non-cash gifts. Non-cash gifts afford some reporting forgiveness if the item is a de minimis benefit, too small of a fair market value and too infrequently provided to warrant the effort of tracking. Consider company swag like logo pens or water bottles given to employees at an event; each of these non-cash gifts have a small fair market value that would qualify as a de minimis benefit and remove the need to report the gifts as taxable income.
The IRS hasn’t provided a specific dollar maximum which qualifies as de minimis but in one case stated that a non-cash award with a value of $100 wouldn’t be considered de minimis (and should be reported as taxable income). The takeaway here is that each gift must be evaluated. Here are a few ways to simplify adherence to reporting taxable income on gifts in the payroll tax space: 1. Ensure employees are routinely refreshed on the taxation obligation on gifts and the process to use to report. Though a topic that’s prevalent throughout the year, the period prior to year-end holidays presents an opportune time to educate ahead of a presumed surge of company-sponsored gifting. 2. Facilitate audits of company purchases on corporate credit cards, which may help discover gifting. This could allow for notifications to remind the purchaser of reporting obligations. 3. Keep a pulse on company events and giveaways to proactively remind the organisers of the need for cash / cash equivalent and non-cash reporting, if applicable.
It can be complex for the payroll tax profession to ensure compliance, and those working outside of the finance / payroll arena may view it as being fussy. Yet, gifting is a compliance matter everyone should keep in mind when they decide to give something to an employee that was made possible by the company. n PayrollOrg, https://ow.ly/Je8r50XyCjT, is the global leader in payroll education, publications and training. This non- profit association conducts more than 300 payroll training conferences and seminars across the country each year and publishes a complete library of resource texts and newsletters. Representing more than 19,000 members, PayrollOrg is the industry’s highly respected and collective voice in Washington, D.C. Get more information at https://ow.ly/Je8r50XyCjT.
*This article relates to US payroll practices.
25
| Professional in Payroll, Pensions and Reward |
Issue 116 | December 2025 - January 2026
Made with FlippingBook - Online magazine maker