October 29, 2012
As the holidays approach, you may be thinking about your employees and how you would like to give them a bonus, but you are unsure how to account for it in the books. If you would like to give a bonus/ gift, it is always a tax benefit for the employer, since employers can write it off as a business expense. The important thing to keep in mind is whether or not the bonus counts as taxable wages to the employee. Below are some tips about giving bonuses to your employees:
Two Types of Bonuses
First off, there are two types of bonuses you can give to your employees: cash awards and non-cash awards. A cash award is an award that is redeemable in a specific amount, like cash, gift certificates, or gift cards. A non-cash award is anything else, such as a gift basket or any other kind of food.
Cash bonuses must be reported on the employee’s W-2 and are subject to all the regular payroll taxes. If you give cash bonuses, payroll bonuses, gift certificates, or gift cards to an employee, be sure to account for it on the employee’s paycheck.
Non-cash Bonuses/ Awards
You may give non-cash awards to employees that are not considered taxable income for the employee. Non-cash bonuses are called “de minimis” benefits by the IRS, and include things like small holiday gifts, meals, gift baskets, or concert tickets. Be careful about giving too many non-cash awards away, because there is a limit.
Just remember when the holidays roll around that a little reward can go a long way to show your employees how much you appreciate them. The decision to give a cash or non-cash bonus is strictly up to you. You know your employees best and the best way to show your appreciation. If you have any question about the taxability of a certain bonus, comment and let us know.