Page 6 - Payroll

Employee Tips & Gifts

There are 2 items that are often handled incorrectly, or missed altogether. These are
namely tips and gifts to employees. Failing to handle these correctly could result in
having payroll tax returns recalculated and penalties and interest added to any

unreported taxes that are due.

Employee Tips

Tips received by employees must be
reported and taxed.

Employee Responsibilities:
Keeping a daily tip record
Reporting tips to their employer
(unless less than $20 for the month)

Paying tax on the tips at year end

Employer Responsibilities:
Reporting these tips on payroll tax
reports
Withholding and remitting the
appropriate payroll taxes

Employee Gifts

Most gifts given to employees are taxable
items and must be included in income
(the W-2) at year end, unless accounting
for it would be an administrative burden:
Cash (regardless of amount)
Gift Cards (regardless of amount)
Tangible personal items (unless
minimal in value)

Excluded from Income:
Gift cards for specific merchandise (of
minimal value - such as a turkey)
Occasional flowers or fruit
Occasional theater or sporting tickets

Group parties or picnics

Page 4 Terri Johnson, CPA
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