![]() However, the court found the $160,000 payment resulted from the owner’s efforts to encourage a valued employee to remain with the company. However, it is not impossible for a payment from an employer to an employee to be considered a gift given for personal reasons if it “is completely unrelated to the employment relationship and reflects no expectation of a business benefit,” the Tax Court stated. Payments from an employer to an employee are generally includable in gross income. She received a payment of $160,000 from the company and claimed the money was a gift from the owner, who was a “close acquaintance.” The company reported the amount to the taxpayer and the IRS as miscellaneous income on a Form 1099. In one Tax Court case, a taxpayer worked as the president of an electronics manufacturing company in Seattle, Washington. It is usually difficult to prove in the context of an employer-employee relationship that a gift was given with no business purpose. However, the Supreme Court ruled that the transfer was not a gift but was a payment for “past services, or an inducement for him to be of further service in the future.” Meanwhile, the taxpayer did not include the value of the car in his income because he considered it a gift. ![]() The company later deducted the cost as a business expense on its corporate tax return. The information turned out to be valuable and the company rewarded the taxpayer with a Cadillac automobile. In that case, an individual taxpayer gave the names of potential customers to a company that he often did business with. Supreme Court established that a transfer only constitutes a tax-free gift if it is made through “detached and disinterested generosity” or “out of affection, respect, admiration, charity or like impulses.” ( Duberstein, 363 U.S. What if a supervisor gives a personal gift to an employee?ĭecades ago, in a landmark case, the U.S. Annual gifts of up to $14,000 per recipient are exempt from gift tax implications under the gift tax exclusion. In contrast, gifts from one individual to another are not taxable to the recipient. The value of the gifts must be reported on the employee’s Form W-2 for that year. In other words, the gifts are subject to both income tax and employment taxes. Usually, employees will face a tax bill for your generosity.īackground: Unlike gifts made on a personal level, gifts from an employer to employee (outside the context of employment) are generally taxable to the recipient as supplemental wages. Do you want to be extra-generous to employees who are doing a good job? Bonuses and gifts can be an effective motivational tool, but be aware of all the tax consequences.
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