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Are gift cards taxable income to employees?

are gift cards taxable incomeIs it ever possible that a retailer gift card given to employees can use the de minimis exception to taxable income to the employee?  What if the gift cards are given at a retailer such as Apple where specific products are the only possible end gifts?

Editor's Discussion Summary:
  • Gifts under $50 vs any gift opinions
  • Some employers add the cost of the tax to deliver the net gift
  • De minimis meals & employee appreciation awards
  • IRS documents seem to indicate virtually always taxable with few exceptions
  • Plus much more below including this discussion on accounting for gift cards: https://www.proformative.com/questions/accounting-gift-card-cost

Answers

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

I did some research on the question of are gift cards taxable income to employees a few years ago and what I found was not great. Any gift with a value over $50 (they said it could be stretched to $75) was taxable - even when for a catalogue where the employee chooses their item. Since it was my employer's preference to give gift cards as opposed to cash bonuses, we ended up having to add the value to their wages so they would be taxed appropriately. We couldn't keep track of someone who received one, two, or ten of these cards to know when they should be taxed.

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Proformative offers 400+ business courses with free CPE, many on Tax and Accounting.

(Agent, JKS Solutions, Inc.) |

This falls into the category as Base Ball Tickets that you might award to your employees.

IRS Publication 463 - Gifts
http://www.irs.gov/pub/irs-pdf/p463.pdf

Here is a link to the following text:
http://www.irs.gov/publications/p15b/ar02.html

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De Minimis Meals

You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. The exclusion applies, for example, to the following items.

•Coffee, doughnuts, or soft drinks.

•Occasional meals or meal money provided to enable an employee to work overtime. However, the exclusion does not apply to meal money figured on the basis of hours worked.

•Occasional parties or picnics for employees and their guests.

This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises, later.

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You may also find additional guideance related to employee appreciation awards.

Keep the cards at or below the limit. If you have a top performer who receives multiple rewards during the year, you might need to track them for W-2 inclusion depending on the conclusion.

It would be great if people saying they did research could post a link that backs up their conclustion the cards do not fall into the deminimis category.

If your company has a plan in place that documents employee appreciation awards given by their manager that might include such cards and all the IRS limitations are considered and followed, and it is for the benefit of the business, then you should be okay. It would be to your benefit to pay your tax specialist to do some research to verify. The Code does not cover all types of gifts or employee awards, so you will need someone to hunt through the regs or IRS notices online and find examples.

Disclaimer: This post is for discussion purposes only does not constitute tax advice and you should seek professional advice from a qualified tax professional.

Anonymous
(CFO) |

Thanks for the responses. As for posting a link that backs up the conclusion that the cards do not fall into the deminimis category, this is directly from the IRS website:
http://www.irs.gov/Government-Entities/Federal,-State-&-Local-Governments/De-Minimis-Fringe-Benefits

Gift certificates
Cash or cash equivalent items provided by the employer are never excludable from income. An exception applies for occasional meal money or transportation fare to allow an employee to work beyond normal hours. Gift certificates that are redeemable for general merchandise or have a cash equivalent value are not de minimis benefits and are taxable.
A certificate that allows an employee to receive a specific item of personal property that is minimal in value, provided infrequently, and is administratively impractical to account for, may be excludable as a de minimis benefit, depending on facts and circumstances.

Gina Wallette
Title: Program Analyst VIII
Company: Corporate Allocation Services, Inc.
(Program Analyst VIII, Corporate Allocation Services, Inc.) |

This is a very clear and understandable resource:

http://www.irs.gov/pub/irs-pdf/p5137.pdf

Sue Ashe
Title: President and CEO MobileAccountantAZ
Company: MobileAccountantAZ
LinkedIn Profile
(President and CEO MobileAccountantAZ, MobileAccountantAZ) |

@Valerie: Thank you but I have a question - I am having a disagreement with a CPA who objected to my using the Employee Welfare account. My client doesn't have a physical office and the employees and staff support who are all subcontractors working very limited part time hours. He routinely has a "staff meeting" at let's say an Applebees and he provides lunch for everyone. To me that's an employee welfare expense because if the client had provided the meal in an office setting it would be. Another client has a commission based assistant in her leased office space and that CPA lets me post the meals to Employee Welfare but this CPA for this client insists it's only for Employees.
Thoughts?

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