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Report Gift Cards on Form W-2 for Employees

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Be sure to include the amount of any gift cards given to employees during the year as compensation on Form W-2. The IRS has clarified that the “inadvertent error” section of the 2015 PATH Act does not apply to amounts that are known to the employer.

Example

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii). They are required to file Form 990 annually.

As the college prepares employee Form W-2s for 2016 (with forms due to the employee and the IRS on January 31, 2017 this year), TBC’s controller calls to ask about where things stand with respect to reporting gift cards on Form W-2.

TBC has historically given employees in the accounting department $20 Nile Books gift cards for their birthdays. TBC has considered these birthday presents a de minimis fringe benefit for these employees, and wonders whether the value of these gift cards should be included on employees’ W-2s each year. They are not sure whether the 2015 PATH Act’s “safe harbor” would allow them to omit the $20 gift card value from the 2016 Form W-2s.

We answer “No.” Although it appeared that the PATH Act safe harbor might be of help in this area, the IRS just clarified that the safe harbor “applies only to inadvertent errors” and thus “known” gift cards must be reported on Form W-2 each year.

Rules

From IRS Notice 2017-9, Sec. 3.04:

Scope of the safe harbor. The de minimis error safe harbor applies only to inadvertent errors on a filed information return or furnished payee statement. A payor that intentionally misreports a dollar amount on an information return or payee statement, whether or not the amount otherwise qualifies as de minimis, falls under the intentional disregard provisions of Code Sec. 6721(e) and Code Sec. 6722(e), and, therefore the de minimis error safe harbor does not apply. A pattern of non-compliance may indicate an intentional disregard for purposes of the penalties. Additionally, the de minimis error safe harbor doesn’t apply to a failure to file or furnish an information return or payee statement, even if the payee statement or information return would report dollar amounts of $100 or less (or $25 or less with respect to any amount of tax withheld). [Emphasis added.]

Bottom Line

With this IRS clarification, you should ensure that the amounts of gift cards given to employees for birthdays, holidays, and other reasons are included in Form W-2 — unless they meet one of the exceptions. Consult with your tax advisor, who will be able to help your organization navigate the intricacies of the reporting requirements.

Dave Moja

Dave is dedicated to meeting client needs in the exempt organization tax arena through review of client returns, consulting engagements, training, and the compilation of the annual CapinCrouse Higher Education Tax Reporting Trends Project. He has 29 years of accounting experience and serves several industry committees, including the AICPA Not For Profit Advisory Council. Dave has also served on the IRS Advisory Committee on Tax Exempt and Government Entities (ACT).

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