employer gift cards may be taxable

Does Giving an Employee a Gift Card or Other Small Gift Cause a Tax Issue?

  • December 1, 2020

Are employer gift cards taxable? Yes. In the past, employers could give employees cash or a cash equivalent gift such as a gift certificate for amounts less than $25 without any tax concern. These were known as de minimis fringe benefits or gifts.

Fringe benefits are taxable

That is no longer the case. The Internal Revenue Service (IRS) tells employers that all fringe benefits, such as gift cards, are considered taxable wages unless specifically excluded by a section of the Internal Revenue Code (IRC).

There are still many non-taxable options

Employers may still provide quite a few perks to employees that may be considered de minimis and not taxable to the employee. These include tickets to the theater or sporting events, They also include traditional birthday gifts or holiday gifts with a low fair market value (not cash or cash equivalent). Flowers; and occasional break treats such as coffee, doughnuts, soft drinks, and the like, are also de minimis.

For example, the employer is allowed to give employees a small gift on the employee's birthday or a holiday gift, such as a turkey or ham without any taxable issues to the employee. However, if the employer gives the employee a gift certificate to purchase the item that could instead be used for general merchandise, the amount of the gift certificate would be treated as taxable income to the employee.

A deeper dive to learn more

So, to sum up, employer gift cards and gift certificates are taxable if they can also be used for general merchandise purchases. Here are some helpful links to the IRS's guidelines on de minimis fringe benefits specifically, and "fringe benefits" in general, a broadly-inclusive phrase. Click here for the de minimis link, and click here for the fringe benefits link.

My Team and I can advise you whether a particular perk would be considered de minimis and not taxable to your employee. And we can tell you what to expect regarding the perks you choose to provide. Just call us if you have any questions. You can also email me at Larry@TaxProblemSolver.com and our office number is (855) 688-4779. We're always here for you! Click here for a free consultation!

About the Author Larry Heinkel J.D. LL.M

Larry Heinkel is a tax and bankruptcy attorney with more than 37 years experience helping businesses and individuals, solve their state and federal tax problems. Mr. Heinkel has been extremely successful in representing his clients before IRS and DOR, and is known throughout Florida as an expert in tax problem resolution.

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