I purchased two gift certificates for my employees in one receipt/transaction. $35 for each employee and $10 tip for the vendor, with a total expense of $80. I hear that this gift is taxable to my employees. Thank you.
Cash or cash equivalent items provided by the employer are never excludable from income. An exception applies for occasional meal money or transportation fare to allow an employee to work beyond normal hours. Gift certificates that are redeemable for general merchandise or have a cash equivalent value are not de minimis benefits and are taxable. (look up: de minimis fringe benefits)
Also, You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year.
So, on the company side, youll need two expense categories/accounts: 1) Gifts 2) Gifts (excess $25) When you purchase the gift, post up to $25 (per person) to the Gift (I would identify the number of employees – at least, or some other justification to the amount) Account, The excess amount(s) to the Gifts (excess $25) account. Since the tip is not a bonafide expense (in this case), you may also be able to classify it as a gift, but you need to talk to a tax advisor for clarity. BTW: youll need to check this category amount each time you post a gift to verify if youve exceeded the excess gift threshold. Also, youll need to check youre own state requirements, too, but this should give you the framework for any differences.
Unfortunately, recording the gift here on the company side does not automatically appear on the employee compensation, so youll need to record the entire amount of the Gift to the employee, for employment tax purposes. Set up the employee gift as you would a bonus or other compensation. Its a payroll expense, so dont map it to the gift categories above. Again, check with your own state requirements regarding the employment taxes.