Holiday Gifts for Employees: Ideas and How They’re Taxed
A holiday gift is a nice way to say thank you. In the eyes of the IRS, though, any fringe benefit you give an employee is taxable unless the law specifically excludes it. The good news: many classic holiday gifts fall under an exclusion. The catch: gift cards never do.
How the IRS treats holiday gifts for employees
De minimis gifts are tax-free
The IRS lets you exclude a de minimis benefit from an employee’s wages. That is property or a service of such small value, considering how often you provide it, that accounting for it would be unreasonable or impractical. The IRS specifically lists holiday gifts, other than cash, with a low fair market value. A turkey, a ham or a fruit basket typically qualifies.
There is no fixed dollar limit. Value and frequency both count: a small gift once a year is different from regular gifts that start to look like compensation.
Cash and gift cards are always taxable
Gift cards are wages. The IRS says cash and cash equivalents, including gift cards, gift certificates and the use of a company credit card, are never excludable as de minimis, no matter how small the amount. A $10 coffee card is taxable income.
A cash or gift card gift goes on the employee’s W-2 and is subject to income tax withholding and FICA, the same as a holiday bonus. If you’re unsure how W-2 reporting works, see our guide to 1099 vs. W-2 tax forms.
A certificate for one specific item of minimal value may still qualify as de minimis, depending on the facts. A certificate you can spend on general merchandise does not.
Example
A company gives each of its 12 employees a $40 holiday ham and a $50 prepaid Visa card. The ham is a de minimis gift: it does not go on the W-2. The Visa card is a cash equivalent: each employee has $50 of taxable wages, and the company withholds income tax and pays FICA on it like on any other pay.
Holiday parties
Occasional parties or picnics for employees and their guests are also de minimis benefits. Food and drinks for a holiday party remain 100% deductible for the business when the event is primarily for employees, not for owners or highly compensated staff.
Federal rules in brief
Low-value non-cash holiday gifts are tax-free de minimis benefits (no fixed dollar limit). Cash, gift cards and gift certificates are always taxable wages. Holiday parties for employees are de minimis, and food and drinks are 100% deductible when the party is primarily for employees.
Holiday gift ideas for employees
Low-value, non-cash gifts
a holiday ham, turkey or gourmet food basket,
a box of local treats or coffee,
a book chosen for each person,
a board game for the whole family,
branded items people actually use, such as a good mug or a warm blanket.
Experiences together
Sometimes time together means more than a gift. Find inspiration in our creative Christmas party ideas for work. Occasional tickets to a game or a show can also be de minimis.
When you want to give cash
A holiday bonus is a perfectly good gift. Just treat it as wages: run it through payroll with withholding, so nobody gets a surprise at tax time.
How to give a gift people appreciate
Ask first. A short anonymous survey or a choice between two or three options shows what people want.
Treat everyone equally, including remote staff and people on leave.
Add a personal note. A few specific lines often mean more than the gift itself. Need wording? See what to write in a business Christmas card.
Tell your payroll provider about any cash or gift cards before the last payroll of the year.
Want to keep morale up all year? See creative employee perks even a small business can afford.
FAQ
Are holiday gifts for employees taxable?
It depends on the gift. Low-value non-cash gifts, such as a ham or a fruit basket, are tax-free de minimis benefits. Cash and gift cards are always taxable wages.
Are gift cards to employees taxable?
Yes, always. The IRS treats gift cards as cash equivalents, and they are never excludable as de minimis, no matter how small the amount.
Is there a dollar limit for de minimis gifts?
No. The IRS does not set a fixed dollar limit. It looks at the value of the gift and how often similar gifts are given.
Does a holiday bonus go on the W-2?
Yes. A cash bonus is wages and is subject to income tax withholding and FICA.
Is a holiday party taxable for employees?
No. Occasional parties for employees and their guests are de minimis benefits. Food and drinks are 100% deductible when the party is primarily for employees.
Can I deduct employee holiday gifts as a business expense?
Holiday party food and drinks are 100% deductible when the event is primarily for employees. For other gifts, check the treatment with your accountant.
