Q&A: Staff Holiday Fund Tax Implications

Q. For more than 30 years, my condominium building has had a resident-managed fund that collects cash gifts for the staff at holiday time. This has worked very well and was always 100 percent independent of the condominium board and the management firm, with no members of the board ever involved with the fund while they were serving on the board.

This past year, for the first time three members of the board were listed on the notices as members of the committee that handles the collection of contributions and distribution of the money to the staff. (This year more than $50,000 was collected and distributed to the employees.)

My understanding was always that board members could not have anything to do with this process, as they are designated as the ‘employers’ and their involvement would trigger the need for the condominium to handle the payments with appropriate withholdings and the condominium paying its share of FICA.

Is that accurate, or is it legal for the board members to be involved in such a process that distributes this large amount of funds to the staff? Does their involvement create potential IRS violations?

                               —Protecting the Gifts

A. According to attorney Aaron Shmulewitz of the Manhattan firm of Belkin Burden Wenig & Goldman, LLP, “In New York State, condominium boards are vested with very broad authority to manage their buildings as they deem most appropriate, subject to various restrictions imposed by law. While this condominium’s bylaws would need to be reviewed to confirm the specific answer here, generally speaking, creating and populating committees and deciding on holiday compensation to staff fall squarely within the board’s authority. There is no legal prohibition on board members serving on a committee that decides holiday compensation for staff, and doing so does not create any additional legal liability for the condominium. Tax obligations with regard to any such payments—both for the condominium and for the staff members—would be the same regardless of who is on the committee.”

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