How to Handle Gifts for Employees

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When you give a gift or bonus to an employee, you must report it on their paycheck so you can withhold the applicable payroll taxes.

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How are employees paid?

Typically, an employee earns wages at an hourly rate or as a salaried worker. However, employees can also get compensation from gifts, bonuses, awards, referral fees or fulfilling quotas. Ensure that you accurately report on the employee’s paycheck or risk having it classified as disguised compensation.

Which gifts are taxable to the employee?

• Cash or cash equivalent (e.g., money order, gift card, gift certificate, gift voucher)
• Theater or sporting event tickets
• Vacation/lodging
• Stock, bond, or security
• Meals

TIP: An achievement award is excludable as a taxable fringe benefit, but you must comply with strict rules on the timing and nature of the gift.

DISCLAIMER: Please consult with your accountant, attorney and financial advisor before implementing any tips displayed on this website. DIY research does not replace the advice of a licensed professional who has thoroughly reviewed your file.