What the Employer Giveth, the Taxman Taketh Away
For those employers giving gifts to employees this holiday season, the IRS, according to this article, follows the general rule that a gift an employer gives to its employees is treated as compensation for services, past or future, and falls within the definition of wages for income tax withholding and payroll tax purposes. So does that mean you have to add the value of the turkey to the employees' gross incomes? Not so fast. There are three exceptions, discussed in more detail in the article:
De minimis fringe benefits - any property or service, the value of which, makes accounting for it unreasonable or administratively impracticable. This might include occasional personal use of an employer's copying machine, occasional cocktail parties, traditional birthday or holiday gifts of property (not cash) with a low fair market value, coffee and soft drinks, local telephone calls, flowers or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis). Cash, however, is never excludable as a de minimis fringe benefit because it is never administratively impractical to account for cash. This is true even if the cash is given so that the employee can obtain property that would be excludable as a de minimis fringe benefit - like the coupon for the turkey, instead of the turkey itself.
Qualified Disaster Relief Payments - any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a "qualified disaster" (i.e. declared by the President). Think Hurricanes Katrina, Rita and Wilma...
Employee Achievement Awards. These include awards that are given for length of service or safety achievement.