Before the spirit of the season takes hold, employers should be aware of new tax rules that apply to gifts and awards to employees. These new rules are effective for 2001 and subsequent tax years.
Gifts
Employers can give their employees two non-cash gifts per year on a tax-free basis, provided the following criteria are met:
•The gift must be for a special occasion, Christmas, Hanukkah, birthday, marriage and so on.
•The total cost of the gifts to the employer, including taxes, must not be more than $500 per year.
In such cases, the employer may deduct the cost of the gifts.
Awards
Employers can give their employees two non-cash awards per year on a tax-free basis. Again, there are strings attached:
•The award must be in recognition of achievement, such as attaining a certain number of years of service, meeting or exceeding safety standards, or achieving other milestones.
•The total cost of the awards to the employer, including taxes, must not be more than $500 per year.
In such cases, the employer may deduct the cost of the awards.
Cash or near-cash gifts
Note that these provisions do not apply to cash or near-cash gifts and awards. They are considered taxable employment benefits. A “near-cash” gift or award may be a gift certificate, gold nuggets, or any other item that can easily be converted to cash.
Gifts and awards exceeding $500
Where the cost of the gifts or awards exceeds $500, the full fair market value of the gifts or awards must be included in the employee’s income. They are considered part of the employee’s remuneration package.
Gifts
Employers can give their employees two non-cash gifts per year on a tax-free basis, provided the following criteria are met:
•The gift must be for a special occasion, Christmas, Hanukkah, birthday, marriage and so on.
•The total cost of the gifts to the employer, including taxes, must not be more than $500 per year.
In such cases, the employer may deduct the cost of the gifts.
Awards
Employers can give their employees two non-cash awards per year on a tax-free basis. Again, there are strings attached:
•The award must be in recognition of achievement, such as attaining a certain number of years of service, meeting or exceeding safety standards, or achieving other milestones.
•The total cost of the awards to the employer, including taxes, must not be more than $500 per year.
In such cases, the employer may deduct the cost of the awards.
Cash or near-cash gifts
Note that these provisions do not apply to cash or near-cash gifts and awards. They are considered taxable employment benefits. A “near-cash” gift or award may be a gift certificate, gold nuggets, or any other item that can easily be converted to cash.
Gifts and awards exceeding $500
Where the cost of the gifts or awards exceeds $500, the full fair market value of the gifts or awards must be included in the employee’s income. They are considered part of the employee’s remuneration package.
