✨✨General Discussions

Our retirement community has a strict no-tipping policy for employees. However, each year residents contribute to a holiday gift fund and every staff member – except management – gets a reward based on years of service.

A question has arisen about whether this money can be characterized as a tip and would then fall under the “no taxes on tips” provisions of the new tax law – thus allowing employees to keep the full amount. Does anyone in NaCCRA-land have any knowledge of this?

Our community (RiverMead) has a similar program for employees run by the Residents’ Council. In order to assure that the payment is not taxed to the employees, the funds are collected by the Residents’ Council, deposited in an RC account and paid directly to the employees. In other words the effect of the transaction is a direct gift from the residents to the staff. The tax issue as we see it is that an employer cannot make a gift to an employee. Regardless of how they describe it, it is wages and subject to withholding and the employer taxes. Therefore we remove any involvement of management. This also means that the resident does not get a tax deduction.

We also make the award solely on the basis of hours worked. Recognition for longevity, we feel is taken care of in an individual’s wages.

Canterbury Court in Atlanta had an intensive study last year run by a former IRS administrator now living here, and we came to the same conclusion as River Mead: employee appreciation bonuses are not tax deductible. We solicit funds throughout the year (and have now started a program for ACH deductions), with bonus checks being given twice -- once in May, and once in November -- the November amount twice the earlier amount.

We also have a scholarship program for employees, with donations to that being tax deductible. Naturally the chair of the scholarship program wants to have the maximum possible to run his program. Previously it had been funded with "leftover" money from the employee bonus program. This year we're soliciting for end-of-the-year tax deductions. We don't know yet how much that will bring in.

Information for The Residences at Vantage Point, Columbia, MD:

The Employee Appreciation Fund is designed to reward all eligible

Vantage Point employees for their service and attention to Vantage Point

residents during the year by issuing an additional payroll deposit/check

from the Fund to each eligible employee. At an event in December, each

eligible employee is given a letter showing the gross amount of their

deposit/check which has been donated by the residents.

The Fund is initiated each year in mid-September with donation requests

being sent to all Vantage Point residents. The Fund is concluded in late

November and the total amount of donations is reported by the Finance

Department where the amount to be awarded to each eligible employee

is calculated. The amount to be awarded is based only on eligibility and

hours worked and has no relation to position in the organization.

Department Directors who are eligible for a payment of appreciation will

be awarded a fixed amount set annually by the Executive Committee of

the Vantage Point Residents’ Association. An additional payroll

deposit/check is issued to them.

Donations are made to the Vantage Point Foundation and are tax-deductable. Withholding tax is deducted.

Our community has a similar "no tipping" policy but does have a Resident Council-managed Annual Christmas/Appreciation fund, which results in each employee (below top management level) receiving a GIFT. The residents cannot count their contribution to this as a charitable donation, and all fundraising clearly states this.

Care is taken to be sure this is considered a gift, not a tip, and is a gift to the employee from the residents, not anything from the employer to the employee. It is paid via checks from the Resident Council's bank account, keeping it separate from payroll.

Gifts aren't subject to income or any other employment-related taxes (FICA, etc). I'm a little confused why anyone would want to recharacterize a gift to be a tip. Granted, the new law allows an income tax deduction to some tipped individuals, but they'd still need to pay FICA. Some of your community's workers will not fall into the qualifying occupations, so they would be subject to all the taxes applicable to tips.