re: I was taxed on Xmas gift cards

Wait until you hear about taxes on sweepstakes or contest prize winnings. Lots of game show contestants that win a brand new car, only to have to sell it because they can’t afford the $8-15k tax bill on it

well they have too or else it is untaxed wages. Our HR dept gives me the same spiel whenever I give safety awards

From the IRS horse's mouth - one of many TL;DR IRS regulations and releases. There's pages of regs on this kind of stuff - no wonder the ACA regs, preambles, notices, releases and other guidance stand almost 6 feet tall.

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Many employers give employees birthday or holiday gifts. These gifts take a variety of forms including a turkey, a ham, a gift basket, or a coupon to purchase a turkey or a ham at a local grocery store. In recent years, the gift card has been a popular alternative because it provides employees with more choices and greater convenience.

Some employers believe that gift cards are not taxable and qualify as excludable from income as a de minimis fringe benefit because they meet the example of “traditional birthday or holidays gifts of low fair market value”, or because they are non-negotiable (restricted to only certain items; the redemption time is limited; and any unused portion is forfeited). However, Federal tax law does not view giving an employee a turkey or a ham as the equivalent of giving an employee a gift card to purchase a turkey or a ham. A recently issued Tax Advice Memorandum (TAM) in 2004 clarifies the tax law and discusses this issue.

In order for a fringe benefit to be excludable as a de minimis fringe benefit, it must be a property or service that is small in value, infrequent, and administratively impracticable. The TAM determined that an employer-provided thirty-five dollar holiday gift coupon that is redeemable at several local grocery stores is not excludable from income as a de minimis fringe benefit. The IRS findings states that the gift coupon operates in the same way as a gift certificate which is considered a cash equivalent. Cash equivalents are never excludable as a de minimis fringe benefit.

The example in Reg.§1.132-6(a) of holiday gifts is limited to property; it does not include cash (except for special rules that apply to transit passes and/or occasional meal money). The same regulation states that cash is not excludable even when it is provided to purchase a property or service that, if provided in kind, would be excludable as de minimis. The example given in the regulation refers to an employer providing cash to purchase a theater ticket to the employee; whereas, if the employer gave the employee the theater ticket it would be excludable as a de minimis fringe benefit.

The Service holds that the “statute provides the basis for the exclusion”, wherein the regulations describe examples of fringe benefits that are potentially excludable assuming all of the other requirements of the statute are met. Because gift cards, certificates, and/or coupons are considered cash equivalents, they do not meet the statute requirements to be excludable. Furthermore, the value of the coupons was determinable and the frequency to individual employees was ascertainable - all requirements that must be met in order for the coupons to be excluded from income.

The TAM does not address a dollar threshold to establish a standard for the meaning of “small in value.” However, we can look at other tax law for guidance. A 1959 revenue ruling states that the value of a turkey or a ham is considered nominal or small in value. A 2000 legal memorandum states that non-monetary recognition awards having a fair market value of $100 did not qualify as de minimis fringes and are considered wages.

So, if an employer provides a turkey, a ham, or other property of nominal value to employees, the value of these items is not considered wages or salary and is excludable from income. But if an employer provides gift cards, certificates, or coupons to purchase a turkey, ham, or other nominal value property, these are considered wages and are subject to income and employment taxes (even when the card restricts the items purchased, the time to use the coupon, and any unused portion is forfeited) because cash equivalents do not meet the de minimis fringe benefit requirements.

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IRS scrooge

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If they truly gave you 700 and then reduced your wages by 700, I'd be pissed and would instantly reach out to HR. They could either list it as 700+x (x being taxes) and show you net to 700, or 700 and the x for taxes lowering your actual paycheck. They should not be removing the entire 700.

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They just grossed him up to cover the taxes. Happens all the time, not complicated. He’s just a dumbass

The fact that there are so many in here disparaging the company for doing something for an employee, and doing it legally, is alarming. I assure you that you would not have preferred them hand you that amount of money as a cash bonus instead of a gift card unless you would've preferred to pay the supplemental tax rate.

If they ran the gift card amount through payroll, and combined it with your regular paycheck, then you'd be able to pay only ordinary tax instead of the supplemental rate on the gifted amount. It's pretty tough for a company to "get away" with handing out gift cards to employees without paying taxes. That "miscellaneous" GL is the first place auditors look because it's often the most abused.

Xmas?



Do better

Not an accountant but couldn't the company run this like a prize drawing at an event? Basically hold a drawing for the gift cards where all the employees just happen to be picked?

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They physically handed me 700 worth of cards, then deducted that amount.

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So, you're saying your net pay on this pay period is $700 less than your "normal" pay period?

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So, you're saying your net pay on this pay period is $700 less than your "normal" pay period?

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He doesn't know what the F he is saying. He's been working for 39 years and doesn't know how to read a pay stub.