IRS Guidelines for Employee Gifts
When you receive a gift from a family member or friend, you don't have to pay taxes on that gift. When a "gift" comes from your employer, however, you just might. The IRS guidelines for employee gifts take into consideration the nature of the gift and the reason for giving it.
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Cash Gifts
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Cash gifts from employers are always considered taxable income. This includes "cash equivalents" -- items that can be used in place of cash -- such as gift certificates and gift cards. The reason for this is simple: to prevent both employers and employees from avoiding taxes by dressing up compensation as "gifts." Furthermore, if an employer pays the taxes on a taxable gift on behalf of an employee, those payments are themselves taxable cash-equivalent income.
Non-Cash Rewards
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When a gift is something other than cash or a cash equivalent, there's a little more room for interpretation. However, if the non-cash "gift" is really a reward for a job well done, or an incentive to do a good job in the future, then the gift becomes taxable. For example, if a real-estate company awarded a new car to the salesperson who sold the most lots, or gave everyone in the office a set of steak knives because the company met its annual targets, then those gifts would be taxable because they are performance-based. They are taxed according to the fair market value of the item.
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De Minimis Gifts
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The IRS uses the term "de minimis" to refer to non-cash gifts or other benefits that are of only nominal value, meaning the value is so small that it's impractical to do the accounting necessary to report them to the IRS. This generally refers to gifts that an employer provides only occasionally, not routinely. De minimis gifts are generally non-taxable. For example, if every employee gets a ham or turkey at Christmas, that's a de minimis gift, as would be flowers for an employee's birthday, occasional company-provided snacks, extra theater or sports tickets, or food at a company picnic.
Achievement Awards
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Even large non-cash gifts may be non-taxable to the employee if they meet IRS guidelines for "employee achievement awards." Such gifts may be given in two instances: in recognition of longevity, such as a gold watch for 20 years with the company, or as a reward for safety accomplishments. They must be awarded in a "meaningful presentation," such as at a company function, and must be an item of "tangible personal property" -- meaning an actual item you can keep, like golf clubs or a silver platter, not a vacation or shares of stock.
An employee can't receive a non-taxable longevity award until he's been with the company for five years, and he can only get one once every five years. Safety awards cannot go to supervisory, clerical or professional employees, or any employee who's been with the company less than a year. No more than 10 percent of eligible employees can receive a safety award in any year.
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