Can't we just give money to someone without getting the IRS involved?
November 5, 2009 8:25 AM Subscribe
Tax Filter: What is it considered to the IRS if you give a co-worker (a subordinate but not really your employee) a bonus/gift out-of-your-own-personal pocket?
Background: DH works at a company where he makes more than most in the organization but he has nothing to do with hiring, firing, paychecks, management, etc. Let’s say he works with someone and really appreciates the above and beyond work they’ve done to help him out, and he wants to give said person a nice bonus….let’s say $8,000 split between two checks out of his own personal checking account. What is that considered for tax reporting....a bonus? Even if he’s not technically the employer, and if it was, then would it be considered some sort of deduction on our end and taxable on her end?
Or could we argue that it’s a gift and therefore not subject to taxes since it’s under the $15,000?
On a similar level, we’ve given receptionists $25 gift cards, or Christmas gifts worth $100 or so to coworkers who we consider close friends. I would never dream of considering those taxable bonuses, so surely there is a gray area.
PS – I know you’re not my accountant, but continuing to work through the IRS publications is making my brain bleed.
Background: DH works at a company where he makes more than most in the organization but he has nothing to do with hiring, firing, paychecks, management, etc. Let’s say he works with someone and really appreciates the above and beyond work they’ve done to help him out, and he wants to give said person a nice bonus….let’s say $8,000 split between two checks out of his own personal checking account. What is that considered for tax reporting....a bonus? Even if he’s not technically the employer, and if it was, then would it be considered some sort of deduction on our end and taxable on her end?
Or could we argue that it’s a gift and therefore not subject to taxes since it’s under the $15,000?
On a similar level, we’ve given receptionists $25 gift cards, or Christmas gifts worth $100 or so to coworkers who we consider close friends. I would never dream of considering those taxable bonuses, so surely there is a gray area.
PS – I know you’re not my accountant, but continuing to work through the IRS publications is making my brain bleed.
I cannot answer the entire question, but I know this, that if the person has received any consideration (whether money or money's worth), then it's not a gift.
In English, that means: if there's a service attached to the monetary payment, then that can't be considered as a gift
posted by Lucubrator at 9:40 AM on November 5, 2009
In English, that means: if there's a service attached to the monetary payment, then that can't be considered as a gift
posted by Lucubrator at 9:40 AM on November 5, 2009
Are you going to deduct the $8,000 on your company's taxes? If yes, this is a taxable event for the recipient. If no, probably not.
posted by Midnight Skulker at 10:15 AM on November 5, 2009
posted by Midnight Skulker at 10:15 AM on November 5, 2009
Best answer: I am not your accountant / lawyer; this is not legal advice. I'm a little confused by this part: "Even if he’s not technically the employer, and if it was . . . " Whether or not the donor is the employer or employee will result in completely different tax consequences.
(1) If donor is employer. Under Section 102(c), a transfer from an employer to an employee is taxable to the employee as gross income and not deductible to the employer unless it is a de minimis fringe or if it qualifies under certain other limited exceptions (see §§ 132e, 274(b), 74(c)).
(2) If donor is not employer. Non-employer-donor gifts are generally governed by Section 102(a), under the value of property acquired by gift is excluded from gross income. A gift proceeds from a "detached and disinterested generosity . . . out of affection, respect, admiration, charity or like impulses." Commissioner v. Duberstein, 363 U.S. 278, 258 (1960). Conversely, payments proceeding primarily from "the constraining force of any moral or legal duty" are not considered to be a gift. Id. at 285. If the gift meets this requirement and does not exceed $13,000, (1) it is not considered gross income to the donee, and (2) the gift amount may not be deducted by the donor.
posted by Pontius Pilate at 10:19 AM on November 5, 2009
(1) If donor is employer. Under Section 102(c), a transfer from an employer to an employee is taxable to the employee as gross income and not deductible to the employer unless it is a de minimis fringe or if it qualifies under certain other limited exceptions (see §§ 132e, 274(b), 74(c)).
(2) If donor is not employer. Non-employer-donor gifts are generally governed by Section 102(a), under the value of property acquired by gift is excluded from gross income. A gift proceeds from a "detached and disinterested generosity . . . out of affection, respect, admiration, charity or like impulses." Commissioner v. Duberstein, 363 U.S. 278, 258 (1960). Conversely, payments proceeding primarily from "the constraining force of any moral or legal duty" are not considered to be a gift. Id. at 285. If the gift meets this requirement and does not exceed $13,000, (1) it is not considered gross income to the donee, and (2) the gift amount may not be deducted by the donor.
posted by Pontius Pilate at 10:19 AM on November 5, 2009
Err, missed the bit about $25 gift cards, etc. - these may or may not qualify as de minimis fringes. Treas. Regs. §1.132-6 lists the factors that dictate whether a particular benefit constitutes a de minimis fringe. I am not sufficiently familiar with this particular section to say one way or the other, though I will note that Treas. Regs. §1.132-6(e)(1) might be read as suggesting that holiday gifts of cash, even of small market value, are not excludable from gross income.
I should also note, in case I was unclear above, that whether or not the donor and donee have a close personal relationship is irrelevant if they are in an employer-employee relationship - the employer-employee relationship controls for tax purposes.
posted by Pontius Pilate at 10:31 AM on November 5, 2009
I should also note, in case I was unclear above, that whether or not the donor and donee have a close personal relationship is irrelevant if they are in an employer-employee relationship - the employer-employee relationship controls for tax purposes.
posted by Pontius Pilate at 10:31 AM on November 5, 2009
Response by poster: He's not her employer. But since it is a working relationship, that's where I got confused.
Thanks for the links.
posted by texas_blissful at 10:49 AM on November 5, 2009
Thanks for the links.
posted by texas_blissful at 10:49 AM on November 5, 2009
A terrible idea for too many reasons to go into since IANYL. If OP's husband feels that he is overpaid and his helpful co-worker is underpaid, the right way to handle this is for OP to suggest an adjustment to each of their respective salaries.
posted by MattD at 11:08 AM on November 5, 2009
posted by MattD at 11:08 AM on November 5, 2009
Pontius is right that if the gift is from an employer then it's game over -- taxable to the transferee. You say that he's not her employer, but (and here we enter the grey area) it might be said that the gift was on behalf of the employer, or that your pal was just the instrumentality by which the employer made the supposed gift.
But it's worse than that. Even if there's no employer/employee relationship, the gift must be a real gift, made (in the key phrase quoted above by PP) from "detached and disinterested generosity." Your friend wants to give something in recognition of the great work done by the transferee, and that is not a gift. It's compensation.
posted by lex mercatoria at 11:15 AM on November 5, 2009
But it's worse than that. Even if there's no employer/employee relationship, the gift must be a real gift, made (in the key phrase quoted above by PP) from "detached and disinterested generosity." Your friend wants to give something in recognition of the great work done by the transferee, and that is not a gift. It's compensation.
posted by lex mercatoria at 11:15 AM on November 5, 2009
This thread is closed to new comments.
posted by inturnaround at 8:59 AM on November 5, 2009