If you’re an employer and want to give your employees a gift, you should first ask yourself two questions that could save you some frustration:
- Is this a taxable gift for employees?
- Can the gift be deducted as a business expense?
Of course, the answers to these questions lie in the value and form of the gift.
First, let’s discuss what the IRS means by contractor gifts or business gifts. These gifts must be physical items like chocolate, golf balls, coffee mugs or frisbees.
So, are gifts considered tax deductible? Yes, they are. But there are certain requirements around it. If the gift is considered taxable, you must withhold all the federal, state and payroll taxes on the gift. Plus, you’ll need to pay unemployment taxes.