Unless your name happens to be Herod or Scrooge, Christmas usually brings out the best in people. You can hear them humming carols in the checkout lines of stores, smiling while allowing others to merge into traffic in front of them, dressing in festive clothes, joyfully gathering with family members, attending church services, and decorating homes with lights – regardless of the electricity costs. There’s a general sense of generosity in the air. Employers feel it, too, and want to show appreciation and love for their employees. Suddenly, there are office parties, gift exchanges (I’m not sure how people feel about using the phrase “Secret Santa” in a post for churches), and lunches. Some churches even budgeted to provide their staff with Christmas bonuses. But what happens if the church gives gifts like ham, turkey, movie tickets, or gift cards? Does the church need to report the gifts as income for the employee?
De Minimis Fringe Benefits
No, that’s not a typo in the heading; de minimis is Latin and means minimal. According to the IRS.gov website, a de minimis benefit is considered so small in value and frequency that it is unreasonable or impractical to account for it as income. However, what is considered minimal to some may not be considered minimal to the IRS. When it comes to de minimis items or services, the IRS provides some guidance on its website, stating, “The IRS has ruled previously in a particular case that items with a value exceeding $100 could not be considered de minimis, even under unusual circumstances.” A holiday ham or turkey easily falls into the de minimis category, as would a fun movie night package that includes tickets and snacks – as long as the total value is under $100 (which is getting harder to do with today’s inflation rates). But what about a gift card?
Cash (Including Gift Certificates and Gift Cards)
In general, anytime an employer gives an employee cash as a bonus or for time worked, it must be shown and reported as earned wages. But what if the employer gives the employee a $50 gift card to a popular online shopping outlet? The IRS website again provides guidance for employers stating that it does not consider gift certificates (and gift cards) with a cash equivalent value as de minimis, making them taxable earnings.
What About Volunteers
Healthy churches effectively utilize volunteers to accomplish the church’s mission. Volunteerism at churches can include ushers, children’s ministry workers, worship musicians, financial professionals, landscapers, janitors, etc. As long as the person truly qualifies as a volunteer, a de minimis gift is appropriate and a great way to show appreciation and keep them engaged.
Reporting De Minimis Benefits
The good news is that if the benefit to the employee qualifies as de minimis per the IRS guidance, then no reporting is necessary. In cases where the employer gave the employee a cash, gift certificate, gift card, or item exceeding $100, the employer must include the value in wages on Form W-2 and deduct the appropriate taxes (Federal, State, Social Security, and Medicare).
Employers don’t need to wait until Christmas to show appreciation to their staff and volunteers; being generous should be a character quality demonstrated year-round. Just be sure to know the difference between de minimis benefits and gifts that qualify as income to remain above reproach when showing your generosity.
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