This is the time of year when many employers give deserving employees a reward for a job well done. For FICA and income tax withholding purposes, wages don’t include gifts that are classified as de minimis fringe benefits. Tax-free de minimis fringes are benefits provided by employers that are offered infrequently and have a fair market value so small that it is impractical and unreasonable to account for them. The following are treated as de minimis fringes:
- Birthday or holiday gifts of property (not cash) with a “low fair market value”
- Books or flowers
- An occasional cocktail party, group meal or picnic for employees and their guests, or occasionally giving out theater or sporting event tickets
If an employer gives cash, gift certificates, debit cards or similar items that are convertible to cash, the value in considered additional wages regardless of the amount.
If you have questions on your company's responsibility in processing payroll, please feel free to contact one of our CPAs at (616) 642-9467 or request a complimentary accounting consultation.