Are Holiday Gifts for Caregivers Taxable?

When it comes to gifts for your caregiver, nanny, or household employee, things can get sticky. You want to give them something thoughtful that shows them that you appreciate their hard work this year, but you don’t want to give them a gift that would add to the taxes you two pay for 2015. Can holiday gifts for caregivers be taxable? Yes they can, but they don’t have to be.

Cash and “near-cash” gifts are ALWAYS taxable.

Just like we went over in our article A Gift That Isn’t Taxing, you never want to give cash, gift cards, gift certificates, rewards points, or any type of gift that allows your employee to choose their own gift.

According to the Canada Revenue Agency:

“A gift or award that you give an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash. However, we have an administrative policy that exempts non-cash gifts and awards in some cases.

Cash and near-cash gifts or awards are always a taxable benefit for the employee. A near-cash item is one that functions as cash, such as a gift certificate or gift card, or an item that can be easily converted to cash, such as gold nuggets, securities, or stocks.

A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child… If you give your employee a non-cash gift or award for any other reason, this policy does not apply and you have to include the fair market value of the gift or award in the employee’s income.”

The good news is that non-cash gifts given for a religious holiday can be given without an additional tax burden.

While some holiday gifts to employees are taxable (cash and near cash), some aren’t. As long as you’re smart about your gift choice and you watch the maximum year value, you can choose a gift that doesn’t add any extra taxes for yourself or your employee.

What you can give without an additional tax burden are actual non-cash gifts for one of the reasons listed above (such as a religious holiday) up to a value of $500 over the course of a year. The total gifts you give your employee for 2015, including birthday gifts, wedding gifts, baby gifts, and holiday gifts should not exceed $500. If the value of gifts goes over $500, the overage amount become taxable. Any gifts given for any other reason will also be taxable.

To keep things tax free, consider giving your caregiver a gift basket filled with their favourite candles, candy, coffee, or perfume. If you’re afraid they won’t like what you pick out, you can always include a gift receipt. Do you need some tax-free holiday gift inspiration for your nanny or caregiver? Check out our holiday gift guide from last year, 30 Fabulous Tax-Free Gift Ideas for Nannies and Caregivers.

Photo courtesy of Simon Cunningham on Flickr.

Deborah Shure answers the question about whether your nanny or elder caregiver is your employee or self employed
Deborah Shure answers the hard questions and discusses nanny & elder caregiver contracts, gross versus net pay & more
Deborah Shure discusses why paying your nanny or elder caregiver cash under the table is never a good idea
Deborah Shure discusses why an online calculator might not be the answer to your calculation frustration
Deborah Shure helps you get started with payroll for your nanny or elder caregiver