Do I have to count gifts to 1099 contractors as income for them ?

I would like to give end of year "bonus" to contractors in the form of a gift card. If it is not cash, does it have to be included as part of their income for the year to be taxed ?

Do I have to count gifts to 1099 contractors as income for them ?
they dont have to declare it if you dont.





i would assume that the gift card will have to be under a certain amount to not be considered as income.





as a side note... i can give gifts in my line of business of up to $500. I just cant give cash. i can write the gifts off... they dont even have to declare it. but that is me giving it to a customer, not an employee
Reply:I believe that gifts to employees, if they have a value of less than $25.00 are not considered to be as income earned by the employee, and therefore, not subject to income taxes.


I would think that a gift of no more than $25.00 to an independent contractor would also fall into this category.


You may want to check with the IRS for a definitive ruling.
Reply:if it's up to $25, no report is necessary. If it's more, you have to put it in bx 4 of 1099, not box 7 where you put their compensation. You will deduct buisness gifts on your tax return as business gifts if they are up to $25. If it's more, than your deduction is included in payments to contractors.
Reply:Technically...


Bonuses are payment for services so it's taxable.





You are in a "grey" area because a person "can" give each individual up to $12,000 (2007) and not be subject to the gift tax while the recipient would not recognize the gift as income.





The problem in your example is that the recipients are "contractors" that you hire to work for you. Any such gifts would be viewed suspiciously and probably would be taxable.





Remember that "business" gifts are deductible up to $25 per person!





Generally, "personal" gifts (i.e. to friends, relatives, strangers) are not taxable.





You have "tainted" the gifts since your recipients work for you!
Reply:Gift Cards are close enough to cash to be considered "like cash" and, as such, are taxable.
Reply:If you plan on deducting the bonus as a gift, you are limited to a $25 deduction. It's immaterial as to form: cash or other.





However, the issue really hinges on the wording. If it is truly a bonus, ie "you did a really good job, here's a bone" then regardless of the amount it is compensation and must be reported in box 7 of form 1099MISC.





If it is truly a gift, ie intended to build good will between you and your customers and vendors, then I'd limit the value of the gift card to $25.00