Tax ruling could affect holiday gift giving
As the holiday season approaches, you need to be aware of an Internal Revenue Service ruling last year dealing with gifts between employers and their employees.
Although the ruling does not directly impact anyone except the company involved, it does offer insight into the IRS' current thinking on a situation that will probably occur with many employees before the end of the year.
In this case, the company had traditionally given holiday hams or turkeys to its employees. However, to allow employees more choice and to simplify the distribution of the gifts, the employer switched to distributing gift certificates redeemable at local grocery stores.
The $35 gift certificates roughly equaled the value of the hams and turkeys the employer had previously given.
The company had never withheld income or payroll taxes on the value of the hams and turkeys, so it's not too surprising that it didn't withhold such taxes on the value of the gift certificates, either. Unfortunately, when the IRS audited the employer's payroll records, it pointed out that the tax rules don't treat an employer's small gifts of property the same way as gifts of cash or gift certificates.
Infrequently, small gifts of property from an employer to its employees - for the holiday season, an illness or a birthday - are typically not taxable because the IRS considers it administratively impractical to account for such minor gifts.
However, these same rules usually treat gifts of cash or gift certificates - no matter how small the value - as taxable wages.
That's why the employer was required to include the value of the $35 gift certificates in its employees' wages, making them fully subject to income and payroll taxes.
How could the employer have avoided this result?
The obvious answer is that it could have stuck with giving some kind of property other than cash or gift certificates. It also could have given the employees a holiday party and fully deducted the costs as long as all of the employees or at least those that were not highly paid were invited.
Outside the context of such small gifts, companies may also give employees tax-free gifts up to certain limits if the gifts are tied to an employee's length of service or safety record.
However, other than these narrow exceptions, gifts from an employer to an employee are typically treated as taxable wages.
That may not seem fair because some employees truly do want to make a gift to their employees, but it's the rules. It's something to think about during the upcoming holiday season.
Calling the complaint departmentOn a different subject, a couple months ago, I wrote about the importance of how the person who answers the telephone really makes a lasting impression on your customers. I received several e-mails about the column. I thought that I would share a few of them. They offer some tips you might think about when establishing your telephone procedures.
There are two things about voice mail that drive me crazy: First, being on endless voice-mail loops. Unless I really need to talk to that person or want to order something really badly, I'll hang up. The second thing is when I am searching for an extension when returning a call and the person calling didn't leave an extension. Then the voice mail says, "Press star (*) for a company directory." I don't have time for that and press "0" for the operator. Then I find out that there is no "0" or that "0" has voice mail too!
One of my pet peeves is when the receptionist, or whoever answers the phone, asks, "Who is calling?" This sends a powerful message that the person who is calling may or may not be allowed to speak to the person they're looking for. Screening calls is poor customer service.
Customers are more forgiving if they're told the person they are calling is "meeting with another customer." Customers seem to respond much better knowing that the person they are calling is helping someone else, rather than in a meeting with a vendor or in a meeting with employees.
(Copyright 2005, Ruth King. All rights reserved. Write to Ruth King, 1650 Oakbrook Drive, Suite 405, Norcross, GA 30093. Call (800) 511-6844; e-mail ruthking@hvac channel.tv.).