As the holiday season approaches, thoughts turn to gift giving. Many employers choose this joyous season to recognize and celebrate with their employees. While sharing gifts in the workplace is common, nonprofit leaders must take care during the holiday season to ensure that they are following tax law and will not run into complications during an audit of nonprofits.
The Complications of Giving Gift Cards
Gift cards that are gifted to a non-profit organization are usually used to buy food or other supplies for a charitable purpose, however, some organizations have been known to give these cards to employees as gifts or bonuses. What these organizations may not realize is that gifts, including gift cards given to employees, are generally considered to be taxable compensation.
Not all gifts are considered taxable. Birthday, sympathy and holiday gifts with a low market value like flowers, books or food baskets are not required to be taxed. Holiday parties, group meals or celebratory get-togethers are also excluded. Basically, any cash, even if it’s a very small amount, or cash-equivalent like a gift certificate is taxable, according to Federal law.
Gifts to Volunteers
Further complicating the matter is the fact that many non-profit organizations also utilize volunteers. The policies surrounding volunteers are also scrutinized closely during an audit of nonprofits. Once a gift card or cash is given to a volunteer, no matter how nominal, on behalf of the organization, they are now considered an employee or independent contractor, with all of the requirements that employing an individual requires. This also means the required withholding of income and Social Security taxes.
What You May Gift to Volunteers and Employees
All of these regulations may leave you saying “bah-humbug,” but it is important that you abide by all applicable tax laws. Some benefits or gifts may be considered de minimis such as:
- Holiday gifts, other than cash or gift card equivalents, with a low fair market value.
- Such as an ornament or mug, etc.
- Occasional parties or picnics for staff and their guests.
- Such as a holiday luncheon.
- Occasional coffee, doughnuts, or soft drinks.
- Flowers or fruit for special circumstances.
- Occasional tickets for theater or sporting events.
- Such as a discounted movie ticket as a token of appreciation.
Whether an item or service is de minimis depends on all the facts and circumstances. It is important to remember that a key factor in determining if a gift is de minimis is its frequency and value. During an audit of nonprofits, compliance will be thoroughly reviewed. Your board of directors, donors and even government entities are looking at your nonprofit organization closely to make sure that you are compliant with State and Federal laws and being a good steward of the funds you’ve received.
Ernst Wintter & Associates provides California nonprofit audits, broker dealer audits, tax services, and 401(K) audit services. Contact us for more information.