Tax Minute


Everyone knows that wages are subject to tax, and most people know that gifts, like holiday turkeys, are not. However, the Tax Court has ruled that when employers try to mix wages and gifts, it ends up taxing awful. Here's what happened. A small family-owned company had traditionally provided its employees with a turkey as an annual holiday gift. However, over the years, some of its employees asked if they could have a supermarket gift card instead. To be as accommodating as possible, the company began providing its employees with gift cards that were intended to be approximately equal in value to the turkey they previously provided. The average person would probably assume that if an employer can give an employee a holiday turkey with no tax effect, that they should be able to substitute a holiday gift card of equal value without changing the result. Of course, when it comes to taxes, the average person doesn't make the rules, the IRS makes the rules. And in the eyes of the IRS and the Tax Court, the gift cards smell too much like wages and therefore had to be taxed.

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