Infrequently distributed, low value gifts of property or services may qualify as tax-free under the exception for de minimis fringe benefits. Gift cards and cash are always taxable income to the employee, whether it is just another Monday or New Year’s Eve. The takeaway from this post is that the tax rules treat cash and noncash gifts from the employer very differently. For example, when an employer provides cash to an employee to buy a theater ticket, the cash is not excluded from the employee’s income as a tax-free de minimis fringe benefit, but if the employer gives an employee a theater ticket, it is excluded (if all other requirements are satisfied). Notably, the Treasury Regulations specify that cash is not excludable from income even when it is provided to purchase property or services that would be excludable as a de minimis fringe benefit if provided in kind. The event should be within the maximum annual limit for social events (total of 6 employer paid combined in-person and virtual social events. Treasury Regulations under Section 132 of the Code explain that the term “de minimis fringe” includes both property and services “the value (considering how frequently similar benefits are provided) of which is so small as to make accounting for it unreasonable or administratively impracticable.” The Treasury Regulations provide that de minimis fringe benefits include “occasional cocktail parties, group meals, or picnics for employees and their guests traditional birthday or holiday gifts of property (not cash) with a low fair market value occasional theater or sporting event tickets coffee, doughnuts, and soft drinks flowers, fruit, books, or similar property provided to employees under special circumstances.” If you provide gift cards to your employees attending virtually for meals, beverages and delivery services, the card must meet the gift card conditions for the card to be considered non-cash. To qualify as a tax-free de minimis fringe benefit, a gift from an employer must be of nominal value, infrequent, and not similar to cash. Īs early as 1959, an IRS revenue ruling permitted tax-free treatment of “a turkey, ham, or other items of merchandise of similar nominal value, distributed by an employer to an employee at Christmas, or a comparable holiday, as part of a general distribution as a means of promoting their good will.” The revenue ruling also stated that the favorable tax treatment does not apply to “cash, gift certificates, and similar items of readily convertible cash value.” Gift cards are treated the same as cash.Įven with the emergence of the robust gift card industry, the revenue ruling remains relevant today. Section 132 of the Internal Revenue Code (the “Code”) and related Treasury Regulations establish many exceptions to the rule, including an exception for “de minimis” fringe benefits – items or services nominal in value and historically used for holiday gifts to employees. As a rule, fringe, or incidental, benefits are considered part of an employee’s gross income as a type of compensation for services, similar to wages.
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