Monday, July 13, 2009


We had an unfortunate incident in our business and one of our employees passed away unexpectedly. I would like to give money to the family from my business. If I do this is it deductible?


Stan, prior to August 20, 1996, an employer could give a $5,000 benefit to the family which would not be taxable to the family and would be deductible by the company. Unfortunately, this was taken out of the tax code.

As the rules are right now, any money given to the family would be deductible by the business but would be income to the family. The money earned by the individual prior to this death would be included on his last paycheck and would be subject to normal withholding. There would be no withholding on the monies given to the family. If you should give them over $600 you would be required to prepare a 1099 at the end of the year.

It would be possible to make a gift to the individual. In this case it would not be deductible to you nor would it be income to the recipient. You can make a gift of $13,000 to any one person in any one year without filing a gift tax return. Handling of this gift would vary depending on your form of organization, whether or not you are a corporation, partnership, LLC, S corporation etc.

If you have other questions about this please feel free to contact me.

Larry Kopsa CPA