Employee gifts in your dental practice: are they taxable income?
Updated: Aug 12, 2018
Thanking employees with nice gifts and bonuses should be a pleasant and simple process while providing a positive impact in the workplace. But if you want to avoid IRS penalties in an audit, it's important to know that any cash or cash equivalent items provided by you (the employer) and given to an employee must be added to payroll as income with regular payroll taxes taken out.
Items that need to be added to payroll as income include the following:
Cash bonuses of any amount, even as small as $10
Cash awards of any amount
Certificates or awards redeemable for merchandise
Gift cards, including ones for cash like VISA of any value
Non-cash gifts like jewelry (with some exceptions*)
Tickets for entertainment events (with some exceptions*)
*There are exceptions for some non-cash gifts that are very minimal in value ($75-ish or less) and hardly ever given, like a baby shower gift.
To add tangible gifts to payroll, the IRS requires you add it to the employee's payroll as taxable wages at the value purchased (how much it cost to buy).
Although this is a big bummer for employees because they have to be taxed on the gifts you give them, at least the cost of the gift and the employer portion of payroll taxes is a deductible business expense for you.
Use these tips as a guide, but be sure to consult your tax adviser to determine how to handle the employee gifts and bonuses you're giving.