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Employers are always on the lookout for creative ways to motivate or say “thank you” to their staff. Gift cards seem like a good idea because everyone loves them and they can be customized with your company logo and message. Even better, gift cards can be tax deductible. You just have to understand if they’re deductible or not-and if so, how much of their value will count as a deduction.
Everything you need to know about taxable gifts
If the gift is declared taxable income to the employee, you must withhold all related federal and state personal income taxes. 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 are also tax-deductible for both employers and employees and must be reported on employee W-2s.
- For gifts that can be used like money, like gift cards, companies can deduct up to $25 per person. This means if you give each employee a $25 gift card, you can subtract that from your adjusted gross income. Anything beyond that needs to be reported.
Tip: People often assume that IRS rules on gift cards to employees are covered under “de minimis fringe” benefit rules (a value so small, accounting would be unreasonable or impractical). However, since gift cards have a readily ascertainable value-like cash-this is not the case.
Are gift cards taxed?
- Since they’re used in the same way as money, employees need to report gift cards and gift certificates as taxable income. 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 your company purchases, how much you spend and each gift’s business intent, as with other tax credits, is important to ensure that you get your deduction.
Best of all, these gifts are 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?
Blackhawk Network is the industry leader in employee prepaid cards and gift cards throughout the United States. We offer a full portfolio of comprehensive gift cards unsurpassed in the industry-all the options you need-including cards that are exclusively ours. Just click here to get started or call 866.353.4877.
