Discussion:Gift given by Employer to Employee
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Discussion Forum Index --> Tax Questions --> Gift given by Employer to Employee
| April 21, 2007 | |
| First of all, thanks for all the help and support from this community and I survived another tax year. I have a client where her employer (a corporation) gave her cash gift with a letter stating that it is a gift to her. The amount is $275,000. It was supposed to be $500,000 but according to the client, the company took out the tax that it will pay for the gift which is around 45%. She received this money in 2007. My question is, are there any tax consequences to my client in receiving this gift? From my research, it seems that it is not taxable to her. My other question is, can corporation give gifts to their employees and deduct it from their corporate tax returns? From my research only individuals can file the gift tax return so how does corporation report gifts given? As always, thanks in advance for your assistance and reply. | |
| 21 April 2007 | |
| Something is way off here. There is no way her employer gave her a gift of that amount. It is not a gift. It is wages, subject to income taxes and social security taxes. Have you seen the letter or are you going by what you client has orally told you.
Corporations do not make gifts or file gift tax returns. Even if the employer tells her it's a gift, it's not for tax purposes....it's wages. The 45% withheld sounds about right for fed state and ss withhodling...ask for more information....this is not a gift. | |
| 21 April 2007 | |
| All taxable as compensation to your client and deductible as such by the corporation.
Nominal gifts (of minimal dollar value) of items such as turkeys or hams that are given by employers to promote good will to their employees can be given without being included as part of employee wages. This means that the value of these gifts (which fall under de minimis fringe benefits rules) do not need to be included in wages that are subject to withholding and taxes. The IRS Code Section 132(e)(1) “…defines a de minimis fringe benefit as any property or service the value of which is so small as to make accounting for it unreasonable or administratively impracticable after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees.” Gift cards for an equal value are not the same. If an employer distributes cash, gift certificates, or similar items of any amount or value, which are readily convertible to cash value, the cash or value of such gifts is considered as additional wages or salary. Thus, gifts of this type do not fit the definition of a de minimis fringe benefit under the code and regulations and must be included in wages for both income and tax purposes. | |
| April 21, 2007 | |
| To clariy GLMP's comment, corporations CANnot make gifts of the usual 12k per person per year or lifetime exclusion. Something's rotten and your client will pay. Why not just gross it up as they did, dump it on the W2, the taxes are about the same and it's legal. Geez, the work people will go thru to accomplish nothing is amazing sometimes. | |
Michaelstar (talk|edits) said: | 21 April 2007 |
| Gift / Bonus - in the end, it is all taxable compensation with wrapping paper and a bow just as everyone above has said. I have seen these forms of gratitude before and while not an every day occurance - still not uncommon - most just call it a bonus. The employer withheld $225k in taxes if the $500k was in fact the gross.
Have your client ask the employer for a paystub or some other form of documentation detailing the withholdings if the totals are not being included in her subsequent pay stubs. There is no reason to be shy about this. If the employer "gifted" her that much money - they will not freak out by her asking. What are they going to do - ask for it back?? Use the reason that she wants to bring things to her taxpreparer and do some mid year tax planning so that there are no surprises at the end of the year. It is going to be one really cool W-2 at year end! | |
