Condo Media - November 2021 - 16

Asked & Answered
Employee Holiday
Bonuses Taxes on Gifts
Our community has a " holiday fund "
that residents donate to and the board
then distributes to association employees as
holiday gifts. How can the association avoid,
reduce, or defer the tax on this fund and gifts?
As the holiday season quickly approaches, many
associations will consider giving holiday bonuses
to employees. The frequently overlooked aspect
of such generosity is the associated income and
payroll taxes.
Unfortunately, bonuses paid to employees are
considered supplemental wages (compensation paid
in addition to regular wages) for tax purposes and
therefore taxable to the recipient as compensation,
no different from regular wages for tax purposes, and
included in the recipient's taxable wages on their
Form W-2. Consequently, payroll taxes are imposed
on both the employer and the employee just as they
are for regular wages, and the bonus is taxable to employees
as wages. Please note that the tax treatment
is identical whether the bonus is paid from common
funds of the association or in a separate pool of
money independently raised by unit owners.
The Internal Revenue Service (IRS) is aware that
substantial amounts of payroll taxes are unpaid
due to unreported and underreported income, and
underpaid payroll taxes are a top target in their enforcement
priorities. In 2019, the IRS calculated that
$77 billion of payroll taxes were evaded annually
between 2011-2013, and that number has almost certainly
grown much larger in today's " gig economy "
in which a growing number of workers choose to
freelance rather than hold a traditional full-time
job with one employer. Among the abuses being
targeted by the IRS and the U.S. Justice Department
are businesses paying their employees in cash, thus
evading the payroll system to reduce employment
tax liabilities.
16 CONDOMEDIA November 2021
BONUS PLANNING
With proper planning and a few extra dollars, your
goal of giving an employee a specifi c dollar amount
can be accomplished by having the payroll administrator
" gross-up " wages so that each employee
receives a net check in an even dollar amount.
For example, if you wish an employee to receive
a $1,000 bonus, you pay them a larger amount
so that, after the various payroll taxes have been
withheld, the bonus nets to exactly $1,000. Your
association's payroll provider should be able to do
the calculations. This approach will cost your association
more than the actual bonus the employee
receives, but it is the only approach that allows
your association to provide the bonus and remain
in compliance with federal and state tax law. In addition,
the employee will have no risk of having the
Internal Revenue Service determine that they have
unreported income.
While tax law does provide an exception for
" de minimis " holiday gifts of low-value items such
as the traditional holiday turkey, cash or a cash
equivalent given to an employee is always taxable
income to the recipient. And please note that gift
cards, gift certifi cates, prepaid cards, debit cards,
or other similar items are considered cash equivalents
and thus are taxed as supplemental wages.
■ THIS ANSWER WAS PROVIDED BY
KENNETH A. BLOOM, CPA A PARTNER
IN THE CERTIFIED PUBLIC ACCOUNTING FIRM
OF BLOOM COHEN HAYES LLC
Condo Media - November 2021

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