Year-End Staff Gifts: A Taxing Proposition?

Giving year-end gifts to your church or nonprofit staff? It's a wonderful way to show appreciation, but don’t forget the potential tax implications! Gifts — including bonuses or tangible items — are generally considered taxable income by the IRS, even if they’re meant to be a token of appreciation. This applies to churches and nonprofits just as it does to businesses. While the intention behind the gift is heartfelt, Uncle Sam may still want a piece of the pie. What a grinch.

Let’s start with gift cards. While they may feel like small tokens of gratitude, the IRS treats gift cards just like cash. Whether it’s $10 to a coffee shop or $100 for their favorite retail store, the value of that gift card is taxable income for the recipient. You’ll need to include it on their W-2 and withhold appropriate payroll taxes. Even if the amount feels minor, the rules are clear: gift cards are not considered de minimis (small enough to ignore) benefits.

For other gifts, there’s a bit more leeway. Non-cash items like a fruit basket, box of chocolates, or holiday ham might qualify as de minimis benefits, which generally are not taxable because they’re impractical to track and have minimal monetary value. The key is that these gifts should be occasional and worth less than $100. Anything more substantial could be taxable.

What if you want to give cash bonuses? Like gift cards, these are always considered taxable income. They’re great morale boosters, but you’ll need to account for them in payroll and report them on employees' W-2 forms. To not diminish that boost in morale, consider “grossing up” the bonus to account for the tax liability.

But it’s not all bad news! Gifts to volunteers don’t follow the same rules as for employees. However, any gift with significant monetary value (like a gift card) could still be taxable to the recipient.

The bottom line? Keep generosity flowing, but plan ahead. If you’re unsure about the rules, talk to your Auxilio partner strategist to ensure compliance and avoid surprises. By understanding and managing the tax implications, you can ensure that your generosity truly feels like a gift.

If you’re not yet an Auxilio client partner, contact us to learn how we can serve your church or faith-based nonprofit and reduce your administrative burden to free you up for ministry.