Ruling gets a bah humbug

Posted on Sat, Dec. 02, 2006
Ruling gets a bah humbug
Lexington County employees must pay tax on $25 holiday gift cards
By CLIF LeBLANC







Lexington County’s 1,300 employees will get a little holiday surprise this year — Uncle Sam will tax the $25 holiday gift cards workers have received since 1997.

An Internal Revenue Service auditor advised the county in 2004 about a decision to treat gift cards as taxable income, said county finance director Larry Porth.

The IRS decision doesn’t sit well with Hope Frick, who has worked for the county for 23 years.

“If they’re that hard up for money, then I will send them my Piggly Wiggly card ... when I pay my taxes,” said Frick, 52, a deputy clerk of court.

“That’s the most ridiculous thing I ever heard of.”

County administrator Katherine Hubbard broke the news to council at its Nov. 14 meeting.

“They are supposed to be taxable, no matter how bah humbug that may sound,” Hubbard said of the gift cards. Hubbard changed her name from Katherine Doucett when she was married recently.

The IRS decided gift cards and gift coupons are the same as cash. Cash equivalents are never “excludable” from taxes. That’s tax talk for no taxes due.

Yet a turkey, a ham, a holiday gift basket or a gift card limited to specific products like those is not taxable in the eyes of the IRS.

“This is the first year we’ve ever reported it,” Porth said. “This is no different than if we gave them (employees) $1 per week.”

The gift cards generally are distributed along with the paycheck just before Christmas.

Shannon Cockrell is pragmatic about the IRS policy.

“I’m not crazy about it,” she said of paying taxes on the gift. “It’s only $25.”

Cockrell, a 48-year-old receptionist in the clerk’s office, was more surprised when she became a county employee in 2004 and gave up her old Christmas bonus from a private employer — a week’s pay.

Still, Cockrell said she uses the county card for a holiday meal.

Lexington County allows grocery stores to bid for the cards each year. Piggly Wiggly again won this year’s contest.

The county paid $29,050, or $22.50 each, for the $25 gift cards, Porth said.

County Council set aside $31,050 in this year’s budget to pay for the cards.

That means — ho, ho, ho —there will be a $2,000 surplus.

Reach LeBlanc at (803) 771-8664.

SCROOGE-LIKE?

Here’s how the Internal Revenue Service views gifts to employees, according to www.irs.gov:

Taxable income

“Gift certificates that are redeemable for a significant variety of items are considered cash-equivalent.”

So ... taxes must be taken out of your paycheck for gift cards to grocery stores and the like.

Not taxable

“Those (gift certificates) which can be applied only to a choice of one type of item would generally be considered noncash and could be tax-exempt.”

So ... employers would not have to deduct taxes for gift certificates workers redeem for a specific product or service.

That also means gifts of products — holiday hams or turkeys, fruit baskets — are not taxable.










© 2006 The State and wire service sources. All Rights Reserved.