At work they found a way to make people happy. With this website everyone gets points each quarter and can then give them to other people as a “Thank you.” You can use those points to get rewards from a variety of things like a shirt to a TV. Cool.
However, supposedly someone just found out that the items you get will be taxed. A lot. They said the two t-shirts they used points for suddenly cost $40.
Is this true? I guess you are “purchasing” items without paying taxes, but . . . really? A gift from your office needs taxed by you? Or it counts as income? Or . . ?
I am not an accountant, but it seems like these things would have to be taxed…otherwise there is a lot of potential for abuse, like if your job pays you $25,000 a year for “tax purposes” and then issues you 50,000 “points” that you can exchange for goods without paying taxes. That’s all income.
Those aren’t “gifts,” those are “additional compensation.” And as such taxable. But as sitchensis says, a nominal amount unless you are getting a car. If it were truly a gift, the taxes would be owed by the giver, not the recipient.
As I understood it, the rule of thumb is - if your employer gives you something, it’s income - either cash or fair market value of goods. If it was a contest with random draw (as opposed to “earning” through performance or something) then it was a grey area where usually it was not taxable. Obviously, anything that smells of “way to get around paying taxes” can and will be assessed as income by the tax people.
But then, lottery winnings and gifts are not taxable in Canada. Your Mileage May Vary in the Land of the Free.
Also note as mentioned, you would pay marginal tax on that extra income - so to pay $40 for two T-shirts, that would imply the value of those shirts would be around $100 assuming a marginal tax rate (tax on each extra dollar earned) of 40%. I didn’t think they made T-shirts in embroidered silk.
IRC § 132(a)(4) allows the employer to give what is called a “de minimis fringe” tax-free.
IRC § 132(e)defines a de minimis fringe as “… any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable.”
The Tax Regulations further expounding on this are in Treas Reg §1.132-6.
Some of the bright line rules are that no gift valued at over $100 is de minimus, cash is not de minimus, and gift certificates redeemable for cash or “general merchandise” are not de minimus. Where to draw the line for gifts valued at less than $100 is a grey area and kind of depends on how conservative company management and their tax advisors want to be.
Yep, it counts as income. Even if they let you have your old laptop when you get a new one there are tax consequences (which is why most companies don’t let employees have old equipment).
My company uses this sort of point system. It is counted as income, but my company actually pays the taxes on it, which is nice. Whenever we get points, we also get a weird net $0-owed tax statement, which confused the heck out of me the first time I saw it.
My previous company (absorbed by my current company) didn’t have points, but they did occasionally hand out gift cards, and managers apparently had a stock of gift cards to give out as on-the-spot bonuses. These gift cards were also taxed as regular income, but in that company took the taxes owed out of your next paycheck.
I remember the first time I got a gift card from my manager as an attaboy, it was a pleasant little surprise that I appreciated. IIRC, it was for $50 (I can’t remember the merchant it was for, but it wasn’t a place that I otherwise would have shopped at). Then, on my next paycheck, the company deducted something like $20 for taxes owed on the gift card. That was an unpleasant surprise that I did not appreciate. I wound up net positive, but the company effectively redirected $20 of my money to this particular merchant, without my prior consent. I didn’t make a lot of money, so having $20 unexpectedly taken out of my paycheck was pretty significant, and it made that $50 gift card seem a lot less like a bonus and more like an obligation to do business with that merchant.
Not sure I get this… you netted $30. If you choose to spend it at a place you normally wouldn’t you get a free $30 bonus. If you don’t you are out $0. Sure a Visa card you could use anywhere is better but I won’t turn down any gift.
No, if he chooses not to spend the card at the merchant he doesn’t patronise (because that merchant doesn’t sell stuff that he wants to buy) he’s out $20 - he loses the $20 tax hit and gets zero value from the card.
OK, that’s a bit extreme. There’s bound to be something that he can buy from that merchant which he values at at least $20. Or, he can pass the card on to someone who buys that kind of stuff, so they get value. They can pay him something or, in the worst analysis, he at least gets the warm fuzzies from having done a favour to someone. He may value that at at least $20.
But the point remains. The card is supposed to be an incentive and a reward. It has “$50!!!” printed on it in a prominent position. But in fact it turns out to be worth only $30, and even that $30 comes attended with restrictions about where you can spend it that means it has less utility than three ten-dollar bills would have. Which means, all-in-all, it doesn’t confer anything like $50 worth of benefit on the recipient. Which may result in a pattern of elation-followed-by-disappointment in recipients, which is going to be pretty much the opposite of incentivising.
But this gives rise to a question. If the gift card is going to be taxed on its nominal value, why give employees gift cards? They would be better off if you just gave them a bonus of the same value.
Thaler would tell you that a gift card goes into a different mental bucket than cash.
So there is a good reason for this.
I’ve gotten work anniversary gifts of more than $100 (in some cases gift cards or travelers’ checks) and never knew to declare it. (Statute of limitations has long expired on these.) It would make sense. It would be far easier if work paid the tax, but I don’t know how that would work.
Unless they were really expensive shirts, they’ll probably get most of the $40 back. The employer may have messed up the withholding and calculated it like it was a permanent raise and not a small one-time bonus.
Over here HMRC have some pretty strict rules about “Benefits in Kind”. Years ago, it was common for directors and senior managers to charge all sorts of things to their company accounts: private-school fees, suits, even cars and it was all tax-free. Nowadays, they have even taken a hard look at such things as free coffee and parking spaces at town centre offices. Even a tradesman who takes his van home at night may have to pay tax on the benefit of that.
A gift card system like the OP describes would certainly be taxable at the receiver’s basic rate.
Here in the U.S., that’s definitely a taxable benefit. My previous company (they of the gift cards with taxes unexpectedly deducted out of the next paycheck) let us couriers drive our cars home at night. It was a nice fringe benefit - pretty much the only thing about that company which I liked better than my current company. We had to pay a nominal “commuter fee” deducted out of our paycheck to participate. If we had not paid a “fair market fee”, we would have owed income tax on the fair market value of the use of the car. The nominal commuter fee was probably less than most people would have been out of pocket for taxes, and it was definitely a lot less paperwork for both us and the company.
If the $100 is from the institution that pays you, it’s a taxable benefit (just like your salary); if it’s a collection from the people you work with, it’s a gift, which is untaxed (for things in the $100 range).
I recall reading about a company that paid its drivers to take their work vehicle home at night. he logic they argued was that if they parked them downtown overnight it would cost $X per parking spot. So the drivers were required to take the vehicle home as part of their job, and were also reimbursed the equivalent of what it would cost to park downtown, in effect “renting” the employee’s driveway. yes, the parking payment was a taxable benefit, but commuting with the company vehicle was part of the job, not a benefit.
Another company I heard of got around the “company car is a benefit” thing by making the cars a pool - you did not get “your car” you picked one out of the pool when you needed one (for business reasons).
I suppose that it is possible that the money went on my income statement and into my W2. If so, I’d never notice it.
Like I said, though, it was a while ago.