Volume 9 Issue 2008

Businesses in search of ways to spread some cheer among their employees this holiday season aren’t likely to look to the Internal Revenue Code for inspiration. But there are a few provisions in the tax law that could prove helpful.

Gifts

Employers can give their employees merchandise of nominal value — hams and turkeys, for example — with no negative tax consequences. Such items are de minimis fringe benefits that don’t have to be included in the taxable compensation of the recipients if making a general distribution is seen as a means of promoting goodwill.

Parties

In most situations, the tax law limits a company’s deduction for business meal and entertainment expenses to 50% of the expenses. However, like the holiday gifts just described, an occasional party given for employees and their guests is also considered a de minimis fringe benefit. The 50% deduction limitation does not apply.

Awards

Employers sometimes use a holiday get-together as an occasion to hand out achievement awards to employees in recognition of length of service or safety. Again, the full cost of such awards is deductible — and their value need not be included in the employees’ compensation — if tax law requirements are met. In general, the cost of all the awards made to one employee during the year may not exceed $400. A higher $1,600 limit applies if the awards are made under a written plan or program that doesn’t discriminate in favor of highly compensated employees as to eligibility or benefits.