The company owner purchased a digital camera for an employee as a Christmas gift. I deducted taxes for this item from the employee's next paycheck. How do I record the compensation this gift generated for the employee? I recorded the purchase an expense account, but how do I show that on the employee part?
You can exclude from wages employee Christmas gifts of a minimal value. If it was an inexpensive camera (perhaps <$100), I wouldn't record it as employee compensation and wouldn't report it on the W2. However, if it was a fairly expensive camera, then you would need to record as compensation and record on the W2.
If it would be included on the W2, the amount of the gift would be grossed up for FICA only. (Camera amount/.9435=gross wages) The gross wage amount should be recorded as a "Payroll Expense" on the books, the withholding as "Payroll Liabilities" and the cost of the camera should be removed from the expense account it was normally in.
