Why Gifts to Employees Are (Usually) Taxable: What Every Employer Should Know
It’s always great to recognize your employees with a token of appreciation—whether it’s a holiday bonus, a gift card, or a performance reward. But before you hand out those goodies, there’s one important thing to remember: if it has a cash value, it’s likely taxable.
Cash and Cash-Equivalent Gifts Are Taxable
Any time an employer gives an employee money or a money-equivalent gift, it’s considered taxable compensation by the IRS. This means it must be included in the employee’s wages and is subject to payroll taxes such as:
Social Security and Medicare (FICA)
Federal and state income tax withholding
Federal Unemployment Tax (FUTA)
Examples of Taxable Gifts:
Cash (bonuses, holiday envelopes, etc.)
Gift cards or certificates (even small amounts)
Prepaid debit cards
Checks or direct deposits for personal use
Even if it’s labeled as a “gift,” if it has monetary value and is given because of the employee’s work or performance, it must be taxed.
Are Any Gifts Not Taxable?
Yes—but with strict limitations. The IRS allows what's called de minimis fringe benefits, which are small, infrequent gifts that are so minor they’re hard to track. These are not subject to payroll tax.
Examples of Non-Taxable (De Minimis) Gifts:
Occasional snacks, coffee, or donuts
Low-value holiday treats (like a company mug or T-shirt)
Flowers or a fruit basket for a birthday or special occasion
However, once the value becomes significant or if the gift is routine and expected, it’s no longer de minimis—and it becomes taxable.
Bottom Line
If you give your employees anything that can be easily converted to cash or has a clear cash value, it must go through payroll and be taxed just like wages. While the gesture of giving is always appreciated, it’s important to handle it correctly to avoid payroll issues down the line.
