Myth Versus Fact: Recipe for Employee Gifts and
employees with tax-free fringe benefits, gifts, and awards
allows employers to motivate employees and foster feelings of
appreciation. However, employers must be careful when selecting
benefits and gifts in order to avoid employment taxes and
withholding an additional amount from their employees’ paychecks
— an unexpected “benefit” many employees will frown upon.
Measuring Gift and Award Taxation
The general rules for taxable and nontaxable gifts and awards
are described below.
• De minimis benefits are so small and infrequent that it is
actually impractical to account for them, so they are not
taxable. This category can total up to roughly $75 per year in
• All monetary prizes or awards, including gift certificates and
points cards redeemable for merchandise (even those in amounts
that could be considered de minimis), are taxable. So the gift
of a holiday turkey is not a taxable benefit, but a gift
certificate to purchase one is taxable income.
• Length-of-service awards are defined as noncash awards of no
more than $1,600 in value (or $400 if they are not part of a
previously written program not favoring highly compensated
employees) given during a meaningful presentation for employees
who’ve been employed by the company for five years or more and
who have not received another length-of-service award during the
prior four years. These are not taxable.
• Noncash, tangible personal-property awards given to employees
for safety achievements can be nontaxable if they are awarded
during a meaningful presentation to a nonmanagement, nonclerical,
nonadministrative or other nonprofessional employee, and no more
than 10% of eligible employees have already received their
safety achievement awards in the past year. As mentioned above,
the award can have no more than a $1,600 value (or $400 if it’s
not part of a previously written program not favoring highly
Sifting Through the Myths & Finding the Facts
Myth 1: As long as a company has an employee manual outlining
its length-of-service awards, it can give retiring associates
any gift. The gift won’t be taxable, including a $2,500 gold
Fact 1: A company may give an employee who’s been in service for
five years or more a nontaxable, noncash award as long as the
employee has not received another award in the prior four years
– and the award does not exceed $1,600 in value.
Myth 2: An employer may gift tickets to a local sporting event
to hardworking employees. Since the tickets are $60 each, the
employer does not need to withhold taxes.
Fact 2: While a $60 sporting event ticket would generally fall
under de minimis benefit rules, an employer must also consider
that the de minimis limits are per year rather than per gift. So
if some of the employees have received other gifts, the tickets
may be taxable.
Myth 3: A company gives a cash safety award to any employee who
reports a potential safety concern that is found to have merit.
Because the award is only $10, it is nontaxable.
Fact 3: Cash awards are always taxable. If the award is noncash,
it still may be taxable if the employer is not giving the award
as part of a meaningful presentation and is not limiting the
award to nonprofessional, nonclerical associates.
Myth 4: An employer can give employees a nontaxable holiday
fruit basket at the end of every year.
Fact 4: If the value of the basket and all other noncash gifts
accumulated by each employee throughout the year meets the
definition of the de minimis rule, then the basket would not be
There are many alternatives that an employer should consider
when determining employee gifts and awards.
professionals can help you evaluate gifts-and-awards policies
and assist in structuring employee benefits to minimize tax
liabilities for both you and your employees. And that’s what we
call a sweet deal.