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. 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 give gifts to a select group in a company, the gifts will be considered to have been made to people in that group. Cash gifts and cash equivalents, such as gift cards, are included in the employee's income and are subject to payroll tax withholding, regardless of how small and rare they are.
For example, if you give a gift to a customer's spouse or child, it's considered an indirect gift to the customer. 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. Gift tax is the tax on the transfer of assets, meaning that the tax applies regardless of whether or not the donor intends for the transfer to be a gift. 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.
In addition to the annual gift tax exclusion, people who make donations should know the basic amount of the exclusion. The IRS maintained that the gift certificate was not minimal because it is not administratively impractical to account for gift certificates. There is no set limit for gifts to a company (for example, a gift basket for all members of a customer's team to share) as long as the costs are “reasonable”.
