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Are gift cards taxable income to employees

During holidays, and during entertainment parties our company gives the employees various gift cards with a total value between $25-$1,000 per employee. These gift cards are not acquired from company's funds but from points gained with a credit card reward account. The points gained by using the credit card are redeemed, and various gift cards are acquired, then distributed to employees. . Are these gift cards taxable compensation to employees?


Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

Technically yes. The regs address gift cards as being cash equivalents and thus, TI in almost every case. (Their are a couple of well defined exceptions.) They can't be passed off as de minimis fringe.

Having said that, we do exactly as you describe where I work. And, I'm the one making that decision! But, tax evasion is not my intent. It's just a PIA to recognize the AMEX points we use to purchase the gift cards in the first place, and then expense the purchase and later transfer that expense to compensation to the employees. And, we're talking about $100/year per employee.

Ce la vie.

(Chief Financial Officer) |

I can only state the facts as I know them. Gift cards are typically included in earnings. In this situation, however, since the cards are earned with points, the chance that a tax audit would find them would be limited as there was no cash outlay (not in your financial records). The wildcard here is that an employee could put this on their tax return as income and if audited, the IRS would come back to you on why you didn't include this in the employees’ earnings. It's hard to tell if the IRS would pursue this if you show there was no financial outlay by you. About a decade ago, the IRS started to pursue airline frequent flier awards, but backed off of this stance.


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