If you host holiday and office parties, special outings or other events for your employees, they are most certainly tax deductible. The expenses included in providing recreational and social activities for your employees is not subject to the 50% limit (including the use of a facility) and is deductible. These benefits are for lower compensated employees.
A highly compensated employee must meet one or more of the following requirements:
- Must own 10% or more interest in the business during the same or previous tax year. The employee is treated as owning any interest owned by his or her brother, sister, spouse, ancestors or lineal descendants.
- Received compensation more than $120,000 the previous year. You also have the option to include only employees who were also in the top 20% of all employees regarding compensation the prior year.