Holiday Parties, Gifts, Bonuses

published December, 2006

If your company has a holiday party for substantially all the employees and/or clients, it is 100% deductible, provided it is infrequent and doesn’t involve flying everyone and their spouses to France for lunch. The normal holiday party falls within the “de minimus” benefit rules, that is, the party is of such little monetary value as to be insubstantial. Generally you should try to keep it under $100 per employee to be de minimus. No reporting of wages to the employee is needed in this case, fully deductible for you.

“Gifts” have a limit of $25 value, plus you can spend “incidental” costs beyond the $25 for things like engraving the client’s or employee’s name or postage to get the gift to them. If you give theatre tickets to a client, for example, it starts to look like “entertainment” expense and the deductibility is reduced to 50%! But if the tickets are $25 or less, it can be entirely deducted as a gift. Gift amounts over the $25 limit are non-deductible, just like parking tickets.

Bonuses to employees, which includes a “gift card” (if it is more than $25), is Wage. That means it is subject to payroll tax and needs to appear on their W-2. There is a special “bonus withholding rate” your payroll provider should know about, as long as you identify payments as “bonus.”