Are Employee Gifts Tax Deductible?
We already know that giving gifts to your employees is a delightful way to build rapport. But are employee gifts tax-deductible?
Most businesses show appreciation to their employees by giving gifts, be it in the form of food, gift cards, cash, or the occasional gift basket. Regardless of the type of gift you give, however, you must be aware of the tax implications of employee gifts.
Today, we will talk about whether employee gifts are tax-deductible or not, plus how you can make sure that you can deduct your employee gifts as business expenses. And in the end, we will let you in on some of the best tax-deductible gifts to make your employees feel extra special!
First things first:
Are Employee Gifts Tax Deductible Or Not?
So, are employee gifts tax-deductible?
Yes! The IRS declares employee gifts as tax-deductible business expenses up to $25 per person per year. Additional expenses like engraving, gift-wrapping, and shipping may be excluded from the $25 limit and are still considered tax-deductible expenses. However, the gift and the additional costs must not exceed $100. Otherwise, it will be taxable.
Making Sure You Can Deduct Your Employee Gifts
Are employee gifts tax-deductible? Yes, but there are certain limits that the IRS imposes.
Whether the gift can be considered as a tax-deductible business expense depends on the form of the gift and its value. There are three main types of employee gifts you can choose from, namely tangible property; gift cards and certificates; and awards. Let’s discuss each one:
As we’ve mentioned before, you can only deduct $25 per gift per person every year. This means that if you give your employee a $50 gift basket, only $25 of the cost will be a tax-deductible business expense. Simple, right?
On the other hand, “de minimis fringe benefit” or a gift “for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable and impractical,” is not considered taxable income to employees. This includes snacks, coffee, birthday cards, and other gifts that have low value.
Hence, when choosing a tangible gift for your employees, always remember that only $25 of the cost is tax-deductible. Additional costs like packaging, shipping, or engraving are also deductible, but the total cost of the gift must not exceed $100 per person.
Gift Cards and Certificates
Gift cards and certificates are perhaps the easiest types of gifts to give out, and they can also be good for lowering your tax bill!
Since gift cards and certificates can be used like cash, they are considered taxable income to employees. The cost of the gift card or certificate is 100% deductible to the business. However, you must withhold all federal and payroll taxes that apply.
Giving special, high-value gifts is the best way to show your appreciation to your top-performing employees. However, do note that you can only deduct up to $400 of the cost of each safety or service award, and the gift must be tangible property.
Moreover, it is important to note that you can only give service awards every five years, and they cannot be given in the first five years of an employee’s tenure. On the other hand, you cannot give safety awards to more than 10% of employees within the same year.
The Tax Cuts and Jobs Act of 2017 (TCJA) states that awards of tangible personal property cannot be:
- Gift cards or certificates
- Stocks, bonds, other investments
Looking For Tax-Deductible Employee Gifts?
Tax-deductible or not, giving gifts to employees is a fool-proof way to raise morale and improve your company culture. But, of course, employee gifts also serve a secondary purpose–and that is to lower your tax bill.
So, what are some of the best tax-deductible employee gifts for 2022? Here are some of our top picks!
Coffee mugs, backpacks, flash drives–so many possible gifts! Can’t decide which one to get for your employees? Take it to another level and reward them with a whole gift pack! Pick a pre-assembled themed gift pack, or create your own by handpicking the best gifts you want to include. And if you want to make your gift packs extra special, we strongly suggest including company swag like branded apparel, drinkware, bags, and more.
Here are some of our best swag ideas to provide additional inspiration!
Work-From-Home Care Kits
Are your employees still working from home? Most of us are, and while there are many benefits to working from home, some days can be a drag.
Surprise your employees with a breath of fresh air in the form of a work-from-home care kit! Include a branded blanket, a neck pillow, a cute tumbler, some tiny desk plants, and anything else you think will put a smile on their faces. If you need more help, be sure to read our blog on virtual employee appreciation ideas!
Special gifts for your best employees are tax-deductible as long as they are tangible property and do not exceed $400 per person. Now, there are so many gifts to choose from, but if you want to give your top employees a gift that they will thoroughly enjoy, go for practical gifts such as watches, high-tech speakers, travel gear, leather bags, and other useful yet high-value goods.
Of course, VIP gifts can run up your gifting budget for the year, so be sure you know how to plan a swag budget accordingly.
Are Employee Gifts Tax Deductible? Wrapping Up
Yes, employee gifts are tax-deductible as long as they follow IRS rules. In general, you can only deduct up to $25 per person per year, but that amount of deductible value can be a huge tax benefit for your small business.
From what we’ve learned today, employee gifts serve a dual purpose: to make your employees happy and to benefit your tax bill. So, what are you waiting for? Shop at Swag Bar now and get the best deals on employee gift boxes that they'll actually love! Our swag packs are unlike anything else out there - see the difference for yourself!