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As the holidays approach, are you thinking of your employees and how wonderful theyâ€™ve been? Have you been thinking about how you would like to give them a bonus, but you are unsure how to account for it in the books?
Let’s first talk about the two types of bonuses: cash awards and non-cash awards. A cash award is just what it sounds like. It is an award that is redeemable in a specific amount, like cash, gift certificates, or gift cards. For example, a non-cash award is anything else, like a Christmas ham or a gift basket. Can you write off the expense? Is the gift taxable to you or to your employee? If you would like to give a bonus/gift, it is always a tax benefit for the employer. Employers can write it off as a business expense. The important question is whether or not the bonus counts as taxable wages to the employee. Here are some general guidelines.
Cash awards must be reported on the employee’s W-2 and are subject to all the regular payroll taxes. If you give cash bonuses, payroll bonuses, gift certificates, or gift cards to an employee, be sure to notify your payroll service provider so they can account for it on the employee’s paycheck.
However, you may give non-cash awards as well, and these are not taxable to the employee as income. The IRS calls these kinds of awards “de minimis” benefits. They include things like small holiday gifts, “perks” like the ability to use the company copy machine occasionally for personal use, meals or company parties, or tickets to sporting events. Be careful about giving too many of these, since limits apply, and the IRS will notice if you are using de minimis benefits to avoid paying payroll taxes.
The decision of how to reward your employees is up to you; you know your employees best, and you know what their needs are and how to motivate them. A little reward can go a long way to show them they are doing something right and they are appreciated. And if you ever have a question about the taxability of a certain benefit, feel free to contact us, or talk to your payroll provider.
(post written by Shantel)