Are Gift Cards For Employees Considered Tax-deductible?
29 Nov 2021
Employers are always on the lookout for creative ways to say “thank you” to their staff. Gift cards seem like a good idea because they can be customized with your company logo and message. But before you get too excited about giving out gift cards, it’s important to understand whether or not they’re tax-deductible-and if so, how much of them will count as a deduction.
Many employers enjoy giving thoughtful gifts to their employees. After all, you’re forming a connection with your staff. However, gifts-even in the form of money or gift cards-have tax consequences that companies should consider.
Everything you need to know about taxable gifts
You must withhold all related federal and state personal income taxes if the gift is declared taxable income to the employee. For these numbers, you may also pay other job taxes, such as federal and state unemployment taxes.
Are gifts taxable?
• We’ve all received small tokens of appreciation from our employers. Items like coffee, snacks or small gift boxes not only demonstrate your company’s gratitude, but it’s also tax-deductible for both employers and employees. These occasional, low-value perks are considered “de minimis fringe” benefits by the IRS.
• Tip: When determining if a gift can be categorized as “de minimis fringe,” think about how frequently you give these items out and their value. It also must not be disguised as compensation.
• For gifts that can be used like money, like gift cards, companies can deduct up to $25 per person. This means that if you give each employee a $25 gift card for the holidays, you can subtract that from your adjusted gross income. Anything beyond that needs to be reported.
Are gift cards taxed?
• Employees need to report gift cards and gift certificates as taxable income since these are used in the same way as money. While the expense of the gift card is completely payable by the company, you must pay tax from the worker’s compensation for all these incentives.
• Employee protection and performance rewards of real property, such as a watch, can be deducted up to $400 per year per worker. Employees do not have to pay taxes on their awards, but they must be kept to a minimum.
Taking note of what you purchased, how much you spent, and the gift’s business intent, as with other tax credits, is important to ensure that you get your deduction.
For most holiday gifts, its s a win–win situation: a tiny token of gratitude can make a lasting impact while also serving as a tax deduction. Just make sure you keep detailed data so your generosity doesn’t come back to haunt you during tax season!
Do you want to buy gift cards in bulk for your employees?
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