Gifts for Staff ?

[Grindstone1]

Hello Everyone !

I have a new S-corp that is just starting to get into the black and I wanted to do some nice things for the staff.

I can afford to only do some smaller things for them at the moment but I was wondering if there is a line in the sand as to how much I can do for them without giving them money and then they/company has to pay taxes on it.

I would like to give out some gift cards. Are there limits per year etc... Are there any other good ideas as far as gifts to staff ??

Thanks so much !! :)

[Patrysha]

No idea on the answer, but kudos for you for thinking about your staff and trying to figure out ways to award them.

I loved the grocery store gift cards from the radio station, but I earned most of them and they were taxed as income...only one of them was an actual gift. The rest of what they considered gifts was self serving promotional station clothing, so the gift cards were infinitely better even though they had a lesser value on the surface.

[Spider]

I am a great believer in the encouragement and recognition power of profit-sharing. I developed an extremely successful program that rewarded employees based on the profit my company earned, and we made a big deal about the partnership between labor and capital.

I believe employees want (need) 3 things - recognition for their past efforts, encouragement for future efforts, and a share in the spoils they created. Set up right, a profit-sharing program can work wonders in driving the growth of your business.

[Evan]

The IRS limits you to $25.00 per gift, per employee. Anything in excess is considered wages.

For independent contractors, same rule, except that anything over $25 is not deductible.

To say the least, it's a bit out of touch with reality. Instead if giving them gifts, perhaps you'd like to provide some type of award to recognize them for their achievements.

I've also seen some company's give out turkey's to employees around Thanksgiving. I would say to do something for Easter, but to some that is more of a religious day than a "holiday".

[Business Attorney]

You can give employees de miminis benefits that are not taxable to the employee.

De minimis fringe benefits include property or services, provided by an employer for an employee, with a value so small that accounting for it is unreasonable or administratively impractical. The value of the benefit is determined by the frequency it is provided to each individual employee, or, if this is not administratively practical, by the frequency provided by that employer to the workforce as a whole. IRC §132(e); Reg. §1.132-6(b)

You can buy the employees coffee and donuts. You can throw a party for the employees. You can even gift the employees low-value gifts on an infrequent basis.

You CANNOT, however, give employees cash or cash equivalents (i.e., savings bond, gift certificate for general merchandise at a department store) on a tax-free basis. Those items are specifically excluded from the definition of de minimis gifts under the Regulations.

[Business Attorney]

Evan, the $25 limitation you refer to is an annual limitation on business gifts per person (such as gifts a business might make to customers or referral sources).

The de minimis fringe benefits for employees under Code section 132(e) do not specify a dollar limitation.

[Steve B]

I'm glad you clarified that David. I thought Evan had found something I was never able to find with several attempts over the years. I was asked that question a lot when I was an HR manager and I could never find any specific dollar limit.

We ended up giving out gift cards but counted it as income - I don't think it was really a big deal to do.

There are thousands of ways to show your appreciation. They will all be appreciated the first time - then, they tend to become the expectation and lose their added value.

[Spider]

...There are thousands of ways to show your appreciation. They will all be appreciated the first time - then, they tend to become the expectation and lose their added value.I think this is true - which is another reason I prefer profit-sharing.

The problem with awards, donuts, t-shirts, giftcards, etc. is that there is no tie to the business. It is just another example of employer manipulation. "Oh! Look! I earned my company $5 million dollars and all I got was this lousy t-shirt!" Of course, it's not "all you got" - you also got paid for your time! But the feeling of disrespect remains.

Genuine profit-sharing involves the employee in the business, gives him some 'skin in the game,' and helps him realize that the business depends on what he does every day. It sends the message that you aren't just working for me, you are working for and contributing towards everything the business stands for - and we are doing this together, co-dependent on each other.

[Evan]

Correct, David. De minimis fringe benefits are good because there is no dollar limitation. The question was about gift cards, so I had provided that response.

It depends on what route you wish to go as an employer. If you could host some type of party, maybe they'd appreciate that more than just a $25 gift card (or ANY value gift card).

If there is going to be some form of profit-sharing, then that is wages... Of course that is your decision.

[Steve B]

Evan - I still think I'm missing something.

Your response said you could give a $25 gift without it being considered wages.
"The IRS limits you to $25.00 per gift, per employee. Anything in excess is considered wages."

David's response says you cannot.
"You CANNOT, however, give employees cash or cash equivalents (i.e., savings bond, gift certificate for general merchandise at a department store) on a tax-free basis. Those items are specifically excluded from the definition of de minimis gifts under the Regulations."

Which one is it? Is a $25 gift card considered wages?

I think we gave gift cards this year for Christmas - and I don't think we reported them as wages. I want to get it right.

[Grindstone1]

Thanks for all the responses !!

$25 per year doesn't sound that exciting Evan. Its almost insulting. I'm not trying to reward the government for doing a good job but my hard working staff, I'm sure someone is working hard in the government and deserves part of my staffs' gift cards, haha !!

The fringe benefits sounds like the most fitting idea for now David, besides straight cash. I wanted to have a party and also give gifts. I know a friends co. that give $1000s out as raffel gifts at co. parties- gifts like laptops, big screens etc.. I know that isn't being claimed. I know there are lot of companies who aren't examples but I know I have a lot to learn as far as what I can do.

Profit Sharing might work later Spider. I don't want to set up something so concrete as we are so new and small. I also wouldn't want harder working staff to be held back by others or lessor staff to get the same as staff who perform great. I think regular payments kind of lose their luster and will be considered part of salary, from my experience. I think timing is very important when rewards are given and can be enjoyed as the cherry on top, not to say I won't consider profit sharing later.

Thanks a Million !! (minus the taxes of course) :rolleyes:

[Business Attorney]

Steve B,

From IRS Publication 15-B (2010), Employer's Tax Guide to Fringe Benefits (http://www.irs.gov/publications/p15b/): Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare.

The $25 business gift provision is not an exclusion from income. It is a limitation on the amount that a business can deduct for business gifts. It does not apply to gifts to employees since the amount paid to an employee is deductible as wages.

In other words, if you give an employee a gift card, the amount is fully taxable to the employee and fully deductible to the employer, whether the value is $10 or $100.

[Grindstone1]

Thanks David !

Wow so we can't give any kind of gift card tax free? Sounds like de minimis benefits are the only way to go. If only I could find the de maximus benefits.

[Spider]

...Profit Sharing might work later Spider. I don't want to set up something so concrete as we are so new and small. I also wouldn't want harder working staff to be held back by others or lessor staff to get the same as staff who perform great. I think regular payments kind of lose their luster and will be considered part of salary, from my experience. I think timing is very important when rewards are given and can be enjoyed as the cherry on top, not to say I won't consider profit sharing later...I think leaving it until later is a misguided approach. If you won't share $700 out of $1,000 of profit now, what makes you think it will be any easier to share $70,000 out of $100,000 profit, or $7 million out of a $10 million profit, later?!

So, you're new. Great! That's the time to set it up, if you want good employees and hardworking motivated personnel to help you grow your business. I wrote profit-sharing into my company's formation - it was one of the Articles of Association. We had a profit-sharing plan in place before we had any profits and before we even had any employees!

If you are going to consider profit-sharing - or any reward - as "the cherry on top", then you are likely to offend your employees and find your gifts counter-productive. With that attitude, I recommend strongly that you forget gifts, and especially profit-sharing, as a way to motivate your workforce. Do it right, or don't do it at all!

[Evan]

The $25 business gift provision is not an exclusion from income. It is a limitation on the amount that a business can deduct for business gifts. It does not apply to gifts to employees since the amount paid to an employee is deductible as wages.

Though, admittedly, it rarely is. The IRS does have bigger fish to fry than that...