Okay, so you want to show appreciation and do something nice for your employees and subcontractors during the holidays this year?
One thing to keep in mind, however, is how employee gifts affect both the giver and receiver in the business setting.
For instance, depending on what you do for your employees, it might not count as a tax deduction for you.
Aaaaand, worse still, your employee might even have to pay taxes on it! 🙁
So, let’s look at some examples of good ideas and bad ideas.
Good idea: throw a holiday party
If you throw a holiday party for your employees, your party expenses are 100% deductible to the business (holiday parties are considered an employee fringe benefit).
The IRS maintains that when parties are given infrequently & to promote employee health, goodwill & efficiency, you’re good to go!
Bad idea: cash bonuses
Okay, we know everyone loves the feel of crisp green bills.
But, it’s important to realize that any cash bonus you give is taxable to the employee.
The cash still has to be run through payroll as a holiday bonus, meaning you’ll pay payroll taxes on it (as will your employee).
Basically, it’s the same as giving a holiday bonus in the employee’s typical paycheck.
The only advantage to cash is that it’s definitely more exciting!
Good idea: holiday gifts
Typically, tangible gifts to employees are considered de minimis fringe benefits, and therefore are a tax deductible expense for your business.
But before you go out and buy iPads for all of your employees, remember that the IRS has said that gifts need to cost less than $100 in order to qualify as de minimis or nominal.
So as long as you keep your expenditure safely under $100 per employee, you can feel good about getting your employees fruit baskets, holiday hams, wine, flowers, or even tickets to a show or a sports event (but no season tickets—the IRS says those don’t qualify).
Bad idea: gift cards
So, you’re trying to do something nice by giving a gift card to your employee and letting them choose their own gift.
Well… think twice.
Gift cards are actually taxable to the employee.
So, perhaps instead of giving them a gift card, try to think of a nice tangible gift.