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Gross Up Wages on Employee Gifts

I want to asked if any one has done Gross Up Wages on employee gifts and what your policies are. We currently give out watches to employees on their 10 anniversary that cost anywhere between $2,000 - $10,000. In the past the Company did not tax the employees but we are changing the policy. If anyone has a policy that they could share, I would be very interested in it.

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Just some comments

1. Why not just give them the cash, gross it up and include it in their paystubs?

2. It is presumptous to assume that employees want a watch and to make it worse, get taxed for it. In the past, this (the watch) did NOT matter as it was a gift and employee compensation/tax is not affected.

3. Be creative! An extra 15-30 days (for example) paid timeoff would be much more appreciated in my opinion. I have been with companies who give/gift employees 2-4 months in paid vacation days on their significant anniversaries.

James Scott
Title: Consulting CFO
Company: Early Growth Financial Services
LinkedIn Profile
(Consulting CFO, Early Growth Financial Services) |

The company should assume the tax liability, if any, on a physical gift. No doubt, the taxable bonus would be more appreciated than expensive watch by most folks.

Edward Thill
Title: VP - Finance & Operations
Company: Performance Trust
(VP - Finance & Operations, Performance Trust) |

It is definitely taxable compensation and the company should pay for the grossed up taxes. My company has also provided a very nice 10-yr watch -- and mine sits in my night stand except for the annual holiday party (if I remember). Had it been cash, the money would long be gone or otherwise comingled with my savings and generally non-exceptional. More recently, my firm has instead gone toward using experiences as awards -- vacation trips, an Indy car experience, even scholarship endowments -- something that lives longer than the moment.

Anonymous
(Tax/Business Consultant) |

It depends on how the company wants to include it into its policy!

Generally, you could include a clause stating that certain items, like gifts to employees, would be considered taxable to the person based on FMV and tax withholdings would be considered/taken.

Side note...
Agree with others.

It's "old school" to gift an employee something like a watch.
Didn't know companies did that anymore.

Almost everyone would "prefer" cash.
The gift of property may be taxable so what's the difference between offering tangible property vs cash to the employee?! Just give cash!
At least with a cash bonus, it's up to the employee to spend it however s/he pleases instead of "forcing" the employee to accept a property gift that s/he may Not want!

Additional time-off/vacation time would be much more appreciable ;)

It's confusing on why the company changed its policy.
The taxability of employee gifts should have been an issue with the company's outside accountants/auditors, if any, in the past.

Employer's Guide to Fringe Benefits

http://www.irs.gov/publications/p15b/ar02.html

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