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Giving gift cards is a simple way to express gratitude to workers, and is likely to boost morale. However, gift cards may become a logistical headache for employers, and employees may be irritated by a tax surprise. If you insist on giving gift cards, make sure your workers are aware of the tax implications.
According to Jason Fell of Entrepreneur Magazine, the Internal Revenue Service taxes gift cards, even if they are just $5. This implies you'll have to record the gift card's worth as supplemental wages on a W-2 and deduct taxes from the employee's salary.
Gift cards are taxed by the IRS because they are considered cash equivalents, even though they are only convertible for a specific product or at a specific store.
If you are considering giving an employee a gift card for their birthday or other holiday, make sure you know your company's policy first and get approval from management before purchasing one.
10 Important Points About Gift Cards
- Before buying gift cards, be sure to check the retailer's policy on expiry dates.
- Purchase gift cards only from trusted stores, not online auction sites, to ensure that the buyer earns the maximum value of the card. In general, purchasers can retain their initial receipts with the card's value in case there are any issues with the card.
- Gift cards issued by a retailer and gift cards issued by a bank vary significantly. Although 92% of major retailers do not charge a fee for gift cards, card issuers such as Mastercard® and Visa® are more likely to charge fees for activation, repair, lack of activity and other services.
- When a gift card is bought, it is not considered a transaction by the retailer. They instead wait until the gift card has been withdrawn and the item has been exchanged.
- Encourage people to use gift cards until the government confiscates them! Although the rules do not take effect for a few years, several places have rules that require the state to collect "abandoned property," which ensures that if private possessions go unclaimed for a certain period, the state has the right to seize it and deposit it in the state treasury. States also treat unused or unredeemed gift cards as "abandoned" properties after some time.
- Because of advancements in technology, some stores are now able to reissue a missing gift card if the customer retains the initial purchase receipt. Some retailers often allow gift cardholders to register their cards on the store's website, allowing them to check their balance and receive a replacement card if they lose or misplace the original.
- Companies like Blackhawk Network let customers create their own gift cards, complete with customized messages and pictures.
- Since they are "stored value" cards, most modern gift cards are different from traditional gift certificates. The card automatically records the amount when a customer spends $25 from a $50 gift card. This allows them to purchase more at a later date.
- Purchase gift cards to avoid guesswork. Staff will be able to select their own incentives in this manner.
- Gift cards allow the ultimate in flexibility to both the giver and the recipient.
Gift cards are a perfect way to express your gratitude. They allow employers to express gratitude with a gift card which saves employees time by choosing from a variety of stores or restaurants, they give the benefits of an in-store shopping experience without the hassle, and they empower recipients with more options for their holiday gifts.
Always bear in mind that the value of the gift cards may have to be reported as a part of a salary—just like a cash bonus.
Know if the gift card should be considered a discretionary or non-discretionary bonus. A gift card would be considered discretionary in most situations where each person is given the same amount solely at the discretion of the employer.
It can be called a non-discretionary incentive if the gift card is tied to a certain level of success. In any scenario, it makes sense to consult with your accounting department so you know the specific tax implications for your situation.
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. Our card portfolio offers all the options you need, including cards that are exclusively ours.
We know choosing the perfect gift for your employees can be extremely difficult and time-consuming, so we offer a full portfolio of comprehensive gift cards unsurpassed in the industry.
From Disney® to Safeway® to The Cheesecake Factory®, we partner with the world’s most beloved brands so you can give gifts that please anyone. Reach out to us now to start a conversation with one of our experts.
