Yes, under the right circumstances, Christmas gifts count as taxable income. The holidays are still a wonderful time of year, but 30 percent of that magic of the season could belong to Uncle Sam. The line in which donations are converted to income, especially from an employer, can be confusing. The general rule is that any donation is a taxable gift.
However, there are many exceptions to this rule. Generally, the following gifts are not taxable. In its explanation of additional de minimis benefits, the IRS distinguishes between gift certificates that can be redeemed for general products and gift certificates that allow an employee a specific item of personal property. The IRS maintained that the gift certificate was not minimal because it is not administratively impractical to account for gift certificates.
Payments made directly to an educational or medical institution do not require the donor to use their gift and inheritance tax exemption or to pay gift tax. Non-monetary gifts and prizes awarded to employees can only be considered tax-free if the gift or award can be characterized as an additional “de minimis” benefit under Section 132 of the Code, or if it qualifies as an “employee achievement award” under Section 274 (j) of the Code. Employers must increase employee income on Form W-2 and employees must recognize the gift as taxable income for any cash donation that is not a reimbursement of a legitimate business expense. For example, dad wants to give his daughter a Christmas present, but he wants to do it without using any of his gift and inheritance tax exemptions.
You can't deduct the value of any donations you make (except for donations that are deductible charitable contributions). When it comes to Christmas gifts and prizes between those ranges, employers must use their judgment to decide whether the gift or prize is excludable from employee income as an additional de minimis benefit. While people would enjoy a tax-deductible charitable contribution for the gift and employees would prefer that the donation not be taxable for them, this type of “double immersion” is not usually the result. If you haven't received the gift other than for your employment (for example, an Amazon gift card that is given to all staff), it counts as income.
Distributing tangible gifts to promote goodwill among your employees during the holiday season may be considered a minimal additional benefit, where the gift is too small for your accounting to be reasonable or practical. If your donation is sent to an entire company, such as a fruit or snack basket sent to a customer or partner organization, the company-wide donation will be considered deductible in any amount, provided it is reasonable. The guidance indicates that the donation of Christmas hams by an employer to employees qualifies as exclusive de minimis supplemental benefits; however, the amount of gift certificates that an employer gives to employees to buy the hams themselves is taxable income. If you decide to give cash, gift cards, or similar items as a holiday gift to employees, the value would be considered an additional salary or salary and would be taxable.
