What's the tax on Oprah's iPad and $10,000 check for 'O' Magazine?
On Tuesday, Oprah stopped by the magazine to thank her employees. And she left a little something behind: an Apple iPad, a leather iPad case with the staffer's initials, and a check for $10,000 for each employee. The gifts were given regardless of how long the employees had worked for the company. Awesome, right?
In January 2011, each employee will get another gift from Oprah: a form W-2 reporting the value of those gifts. The total value of the gifts was approximately $11,000, which includes the check, the iPad (valued at between $500 and $800) and the case (similar cases retail for about $80). That amount must be reported as taxable income to the employees.
I know what you're thinking ... but it was a gift, right? It doesn't matter.
With respect to the $10,000, cash or checks given to employees are considered compensation as far as the Internal Revenue Service is concerned. In other words, employers don't really give "gifts" to employees -- they just pay them a little differently. That means the gross amount of the gift or bonus must be included in the employee's income for tax purposes and employers must withhold the proper amounts for income tax, Social Security and Medicare. There is an additional cost to the employer for matching FICA contributions.
What about the electronics and the leather case? The rules for non-cash gifts from employers to employees vary depending upon the type and value of the gift. Small gifts that are considered de minimis (that's Latin for "about minimal things" -- or in other words, small potatoes) from the IRS are not considered taxable. This generally covers the odd fruit basket or engraved pen offered to employees as thank you gifts. Non-cash gifts, however, that are clearly not de minimis, must be reported. The hottest electronic item this season is likely not to qualify as de minimis -- and will likely have to be reported as taxable income.
Hopefully, the employees at O have good tax professionals on hand who will advise them about the tax consequences of their new toys. Assuming a marginal tax rate of 28% (a pretty fair assumption of the average pay rates at the magazine), the tax bill for those items could reach over $3,000.
Still, nice work if you can get it. Hey, Oprah, call me!