Giving Gifts to Employees

Bonuses and gifts to employees for good performance can be an effective motivational tool, although businesses should be aware of associated tax consequences. Employees may incur a tax bill for such generosity.

Unlike gifts made on a personal level, gifts from an employer to employee are generally taxable to the recipient as supplemental wages, subject to both income tax and employment taxes. Consulting with your tax adviser, coordinating employee gifts with your payroll department, and educating gift recipients of potential tax implications are all measures to ensure that incentive programs do not backfire.

To learn more about the tax implications of gifts, read the Weaver newsletter article Giving Gifts to Employees? IRS Wants Its Share.