The holidays are here! You’re feeling generous and you want your workers and customers to feel appreciated for a year of service and loyalty. Here’s your guide to giving business gifts and bonuses to your workers.
Business Gifts
Gifts to clients or customers have a deduction limitation of $25 per individual per year. This is true. Even if you spent $100 on a fruit basket, only $25 of that gift would be deductible. The other $75 is a nondeductible expense. You certainly can give a gift with a higher value than $25, but you will not be able to deduct the cost that exceeds the limit. The deduction is also limited to one gift per individual per year.
Small gifts with a monetary value of $4 or less, such as pens or calendars, are not included in this gift limitation.
Holiday Bonuses for Employees
As an employer, you may want to give out a holiday bonus at some point during the year.
There are different types of gifts you can give to employees and they each have their own set of rules.
A holiday gift, whether it is cash, a gift card, or a trip to an island paradise, is considered taxable income to your employees and is subject to Social Security, Medicare, and back up withholding. The special back up withholding on bonuses is 22%. Bonuses need to be run through the payroll system and show up as compensation on an employee’s W2 at the end of the year.
Certain holiday gifts with a low fair market value can be what is considered de minimus, and would not need to be included as employee compensation.
Examples of these gifts would be:
- a turkey at Thanksgiving,
- flowers,
- or a fruit basket for a birthday, illness or other special occasion.
More details are available at the IRS website in Publication 15-B.
Gifts to Contractors
Business gifts to contractors would follow the same rules as gift-giving to clients and customers. Gifts would be deductible up to $25 and limited to once per year. If the gift is monetary, it may be considered a bonus and the amount given should be included as non-employee compensation on the 1099NEC at the end of the year.
If you have any questions or you need help with your payroll, please call our office at 912-335-5404.
Here are links to other blog posts in our Small Business Series: