Tax tips: Gifts to employees and company parties

Nontaxable gifts: Fruit baskets, hams, turkeys, wine, flowers and occasional entertainment tickets, such as to a show or sports event, generally are nontaxable as fringe benefits.

Taxable gifts: Gift certificates and cash are wages subject to FIT, FITW, FICA, and FUTA--even for a fringe benefit item. For example, a gift certificate for a turkey is taxable even though the gift of a turkey is not. Cash gifts of any amount are wages subject to all taxes and withholding.

Parties and picnics: The cost of occasional parties is nontaxable to employees and their families as a fringe benefit--if they are infrequent and for the purpose of promoting employee health, goodwill, contentment, or efficiency. Examples are: occasional holiday celebrations, cocktail parties and company picnics. Such parties are fully deductible to the business (they are not subject to the 50% limit on business meals) [IRC 132].