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Quick Hits
- Holiday gifts may be taxable wages for workers.
- Gifts of a religious or romantic nature may raise the risk of discrimination or harassment lawsuits.
- Giving gifts to some employees, while excluding others, may damage workforce morale.
Tax Ramifications
Depending on the value of the gift, it may come with an unanticipated tax obligation for the receiver. The Internal Revenue Service (IRS) considers most gifts from employers to be taxable wages.
Cash and gift certificates are always taxable gifts, regardless of amount. De minimis gifts, i.e., items with a small value that are infrequently provided, making accounting for them impractical, are not taxable. For example, a holiday turkey, snacks, coffee, flowers, and books are de minimis, as long as their value and frequency are not too much. While there is no brightline rule, and the determination for whether a gift is de minimis is based on facts and circumstances, the IRS has indicated that an item worth more than $100 may never be considered de minimis even if provided only once.
In most cases, federal employees are prohibited from taking gifts from federal contractors, unless the gift costs less than $20. Lawyers can accept small gifts from clients, but not gifts that are substantial enough to create a conflict of interest, according to the professional ethics rules from the American Bar Association.
Anti-harassment and Anti-discrimination Policies
Most employers have anti-harassment and anti-discrimination policies that could apply to gift giving. With a religiously diverse workforce, it is more inclusive to give holiday gifts and cards that are not associated with one specific religion. Santa Claus, Nativity sets, angels, and Christmas trees are specifically Christian symbols. In some cases, a religiously-themed gift could be considered part of a pattern of religious discrimination, providing extra fodder for a worker’s lawsuit. Managers who give gifts to select employees or groups, while excluding others, may stoke resentment among those who didn’t receive a gift, especially if the recipients mostly come from the same demographic group.
A gift that is intimate, romantic, or sexual is not appropriate and could be considered part of a pattern of sexual harassment. Items like lingerie, undergarments, jewelry, perfume, and cologne are too personal for a professional work environment.
Some managers and workers may think off-color joke gifts are funny. However, items with profanity or language that disparages legally protected classes of people could provide ammunition for a discrimination lawsuit.
Next Steps
At this time of year, employers may wish to remind all employees about corporate policies regarding gifts, professional conduct, and sexual harassment.
Before giving company gifts to workers, employers may wish to review federal, state, and local laws that may impact the taxation of company gifts.
Ogletree Deakins will continue to monitor developments and will provide updates on the Wage and Hour blog as new information becomes available.
Michael K. Mahoney is a shareholder in Ogletree Deakins’ Morristown and New York offices.
This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.
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