Tax Implications of Employee Gifts: Navigating De Minimis Benefits for Compliance and Appreciation

Giving gifts to our employees can be one of the best ways to underscore our gratitude for a job well done. On the other hand, the laws surrounding what we give (and to whom) can make it a tricky business. Yes, it’s an unfortunate reality that our generosity is somewhat tempered by tax laws, but fear not! The term de minimis – Latin for “trivial” or insignificant,” may help.

The Tax Implications of Gift Cards and Cash

Before you log on to buy those Amazon gift cards, let’s hit pause. Giving a gift card may be a nice way to keep the team feeling appreciated, but once a gift card or cash is given to an employee, it is considered taxable income.

An even more startling reality of this seemingly innocent endeavor is that if your ministry gives a gift card or cash to a volunteer – no matter how small the amount – it is considered compensation and may deem the volunteer an employee. And with this distinction come the requirements of withholding and all the related issues of hiring a worker, all of which may leave your organization feeling more like Scrooge.

There are ways to beat that “bah humbug” audit! Gift giving that is random, rare, and otherwise non-monetary may be the perfect de minimis option.

Examples of De Minimis Benefits

De minimis benefits are excluded under Internal Revenue Code Section 132(a)(4) and include items that are not specifically excluded under other sections of the Code. These can include such items as:

• Occasional snacks, coffee, doughnuts, etc.
• Occasional tickets for movies or entertainment events
• Holiday gifts
• Occasional meal money or transportation expenses for working overtime
• Group-term life insurance for employee spouses or dependents with face value not more than $2,000
• Flowers, fruit, books, etc., provided under special circumstances
• Personal use of a cell phone provided by an employer primarily for business purposes
• Use of an office copier for personal reasons
• Books
• Shirts, hats, or jackets with your logo

In determining whether a benefit is de minimis, you should consider its frequency and value. An essential element of a de minimis benefit is that it is occasional or unusual in frequency. It also must not be a form of disguised compensation. Currently, the standard for de minimis value is less than $100.

Be creative in your gift-giving. Keeping it simple, selective, and compliant with de minimis markers will help your organization stay compliant with the law and allow you to express gratitude and appreciation to your employees and volunteers. Church HR Network can provide valuable assistance and guidance to churches, synagogues, and other faith-based organizations. Contact Church HR Network today to stay compliant and avoid any HR or employee tax-related issues.