By the time you read this blog post, the number of shopping days remaining until Christmas will be alarmingly few. Whether you and your workers celebrate Christmas, Hanukkah, Kwanzaa or any other year-end holiday, the practice of giving bonuses to employees is once again gaining traction in the United States. Record high employment and a red-hot economy seems to be making former Scrooges more generous than ever.
How any company goes about paying holiday bonuses is up to ownership and management to figure out. However, we do not want to leave you high and dry. So we have put together this brief 'gift giving' guide intended to help you with your company holiday shopping. Know though that whatever you decide to do will be appreciated by your employees.
Different Kinds of Holiday Bonuses
The beauty of gift giving is that you do not have to settle for a one-size-fits-all approach. This is as true for company holiday bonuses as it is for your own personal shopping. Employers are free to choose whatever form of holiday bonus best suits them at the time. Here are just a few examples:
- Cash – Some employers offer a straight cash bonus paid equally to every worker. Others pay cash bonuses based on length of service. Both these methods work just fine.
- Performance Bonus – Another great idea is to pay cash bonuses based on the overall performance of the company for the past year.
- Gift Cards – Employers preferring to stay away from cash may give their workers gift cards from local establishments. For example, a gift card from a local department store is fairly common.
- Grocery Certificates – Hand-in-hand with gift cards are certificates from local grocery stores. Some employers use certificates to provide a holiday turkey, for example.
- Holiday Party – Finally, there are some employers that throw a holiday party complete with gifts for every worker. The party may include a catered lunch, drinks and hors d'oeuvres, or even a full meal.
Your company is free to choose any of these bonuses or devise something more to your liking. There is no right or wrong way to do this.
Tax Implications of Holiday Bonuses
The tax implications of paying holiday bonuses is the one thing that stops some employers dead in their tracks. They assume that it is too complicated to get involved with. That is really not true, especially if you have contracted your payroll to a provider like BenefitMall. Our clients enjoy full support when it comes to holiday bonus giving.
Here's what you need to know in terms of tax implications:
- Cash Bonuses – All cash bonuses, regardless of the form they take, are subject to federal and state taxes. They must also be reported on worker W-2 forms.
- Gift Cards – Gift cards are also considered taxable inasmuch as the government views them as cash payments. Their full value must be reported.
- Non-Cash Gifts – Non-cash gifts do not have to be reported or considered for tax purposes as long as their individual values are less than $100 each. These kinds of gifts fall under the government's de minimis fringe benefit provision.
- Holiday Parties – Company holiday parties have no cash value to employees. As such, they are also considered tax-free fringe benefits.
One last thing you should be aware of is that any time off given as a holiday bonus is subject to taxation if it is paid time off. It should be reported in the same way as vacation time.
If your company is planning to pay holiday bonuses this year, good for you. We suspect your workers will appreciate the gesture.