And the trend is definitely toward using gift certificates as holiday presents and as employee incentives. As with the de minimis rules, the award cannot be cash or a cash equivalent, and any award that does not qualify as an employee achievement award must be added to the employee's income. Proposed IRS regulations, however, would allow an employee achievement award to consist of a nonnegotiable certificate. However, a person with five years of service in a company could probably choose one item from a very limited selection of nominally valued awards, such as a key chain or a pocket knife. In an unscientific Nation's Busines s sampling of small-business owners who hand out holiday gift certificates, no one was aware of the reporting rule.
Penalties can vary from mild to severe, depending on the circumstances.
Among others who are aware of the rule, many simply choose to rein in their holiday generosity rather than copy with the reporting headache. Knight hosts a Christmas dinner for his employees, which qualifies as a de minimis fringe benefit. Enjoy the holidays, but remember the rules on employee gifts. Gloria Gibbs Marullo is a CPA and business writer in South Bend, Ind.