Can I give employees a holiday ham without being taxed as wages?

Hey, everyone. Paul Simon with the law firm of Simon Paschal. We are here for your video tip of the week. As we get closer to Christmas and the New Year and the holiday season, we want to talk a little bit about employer holiday parties and gifts and how that impacts employees and whether or not it’s considered wages or income.

Generally, we all understand that holiday bonuses, Christmas bonuses, year end bonuses, any type of bonus that you want to call it is wages and it’s taxable to the employee and the employer. But what about holiday parties? What about giving away gift certificates and those types of raffle items? The way the IRS is going to look at it is whether or not the gift is de minimis. Now, what is de minimis? The IRS, like anything in law, basically doesn’t give us a fine, bright rule, but it basically says something that’s so small that accounting, it’s too much of a hassle for them to account for it. So things like gift baskets are likely de minimis. The holiday party where you serve alcohol, where you give away food, that sort of thing is likely de minimis.

Now, what the IRS does say that’s not de minimis is anything of cash. So if you give $20 to all your employees, that is going to be taxable income. And the same thing as if you were to give it as a gift card. Again, it’s going to be taxable income. Now, the one exception to the gift card that the IRS has kind of carved out is if the gift card is for a specific item. So let’s say it’s for a ham and rather than giving the actual ham, you get a gift card that is only good for acquiring or purchasing the ham, the IRS will say that that is a de minimis item.

So what we’re really trying to convey to you guys here today is simply to keep this in mind as you give your employees presents and gifts that whether or not it’s taxable to them and basically advise them, “You may want to go and talk to your CPA,” and the employers, you should likely do the same thing when you guys are planning out the end of the year and how you want to give away gifts. So from our family to yours, we wish you a very happy holidays.


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