Our 2025 Article Index for Your Business

A topical index to our articles that help your business solve problems.

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Braden Fiveash: Publisher
December 21, 2025

Good Morning!

  1. Feature: Our 2025 Article Index for Your Business

  2. Dear TCoL: Taxing Employee Holiday Gifts and Bonuses

-TCoL

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Dear TCoL: Taxing Employee Holiday Gifts and Bonuses

Question: I hired my first employee this year. I want to give him a Christmas gift through the business. Is there a way to do that without making it taxable, or should I just give him cash?

Answer: There is no way to give an employee cash through the business that is not taxable, but there are clean options.​

The IRS starting point

The IRS generally treats anything you give an employee as taxable wages unless a specific exclusion applies. The main federal reference for employers is IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, which is current for 2025.

What is always taxable

Cash is always taxable. That includes checks, payroll bonuses, Venmo, Zelle, and similar payments. Gift cards and gift certificates are treated the same way because the IRS considers them cash equivalents, even if the amount is small and even if you intend them for a particular store or type of purchase. In practice, if it looks and feels like store credit, you should assume it is taxable and run it through payroll.​

Calling a payment a gift or a Christmas bonus does not change the tax result; if it is cash or cash-like, it must go through payroll, be reported on the W-2, and have taxes withheld.​

What can be non-taxable

The IRS allows certain de minimis fringe benefits, which are small, infrequent, non-cash items where tracking the value for each employee would be impractical. Publication 15-B specifically lists low-value holiday gifts other than cash as an example.​

Common examples include a company jacket, a small tool, or a modest holiday food basket. There is no fixed dollar limit in the rules; value and frequency both matter. If the item is meaningful in cost or given regularly, it likely does not qualify, and it starts to look more like regular compensation than a token of appreciation.​

Occasional holiday meals or small gatherings for the team are generally treated as de minimis as well, although larger or frequent events can raise different questions. This works well if your goal is a gesture; it does not work if your goal is real financial help.​

If you want to give a cash bonus?

Your question did not specify an amount, so consider this as an example. Suppose you decide you want your employee to end up with roughly $500 of extra cash around the holidays. In that case, the clean answer is a cash bonus through payroll.​

Many employers choose to “gross up” the bonus so the employee nets about $500 after taxes. That is allowed, but the tax you pay on the employee’s behalf is also taxable wages, so your total cost will be higher than $500, and everything still must be run through payroll and reported correctly.​

A practical approach

Many small business owners take a simple two-step approach. They give a modest non-cash holiday gift that is likely non-taxable as a de minimis fringe benefit, and they pay any real financial bonus as cash through payroll, which they treat as ordinary wages.​

This approach is straightforward, compliant, and less likely to lead to unpleasant surprises for either you or your employee when tax time comes. It also makes it easier to repeat the practice in future years without having to rethink the structure each time.​

Disclaimer: This column provides general information only and is not legal or tax advice. Tax treatment depends on your specific facts and state law, and you should consult your CPA or tax advisor before providing bonuses or fringe benefits.

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