This Holiday Give Turkeys, Not Certificates for Turkeys

In a recent Technical Advice Memorandum ("TAM"), the Internal Revenue Service concluded that employer-provided holiday gift coupons that were redeemable at certain grocery stores for up to $35 were taxable to employees.

Generally, an employee's taxable wage income includes any benefit provided to an employee unless it is a de minimis fringe benefit within the meaning of Section 132 of the Internal Revenue Code. A de minimis fringe benefit includes any property or service the value of which is so small as to make accounting for it unreasonable or administratively impractical.

Under Section 132 and the Treasury Regulations issued to interpret Section 132, a cash or cash equivalent fringe benefit is never excluded from taxable wages as a de minimis fringe benefit because it has a readily ascertainable value and it is not unreasonable or administratively impractical to account for. A cash equivalent fringe benefit (like a gift certificate) is taxable even though the property or service acquired, if provided in kind directly to the employee, would be excluded as a de minimis fringe benefit. For example, as noted in the TAM, the provision of cash to an employee for a theater ticket is not excluded as a de minimis fringe benefit even though the ticket itself, if provided in kind, would be.

Employers that provide holiday cash bonuses, gift certificates or other cash equivalent benefits should ensure that all such gifts are treated as taxable wages for employment and income tax purposes.

For assistance with the tax issues surrounding your holiday largess, contact Patricia A. Hintz at 414.277.5833 or your Quarles & Brady attorney.