Can You Write Off Gift Cards Given To Employees?
Many employers enjoy giving thoughtful gifts to their consumers, employers, and employees. In the past, gift cards were often given to employees as a holiday or end-of-year bonus. In recent years, however, employers have been more cautious about giving out such rewards because of their potential nuisance in terms of income taxes.
A recent law passed by congress has made it easier for companies to provide these rewards without paying tax on them. This is good news for bosses who want to reward their hardworking staff!
After all, you’re forming a bond with your staff and establishing a rapport with your customers. Gifts, whether cash or gift cards, have tax consequences that business leaders should consider.
Here are some examples of typical business gift-giving scenarios:
- You give gift cards to other shops on your street to commemorate your store’s first anniversary.
- You throw a promotional “open house” and give out t-shirts or stickers to the first 100 people who show up.
- You give gift baskets to loyal customers as a token of your appreciation.
- As a token of gratitude, you give chocolate, food, or wine to vendors.
- You choose an item from your own stock to send to a friend as a last-minute surprise gift.
Employee gifts are perceived to be a direct part of their job, so they are considered legal compensation. In your general ledger, such gifts should be listed as compensation. Now, this isn’t done too much in practice, but the IRS has it as a general rule.
Take this advice into consideration. If you don’t want to report the gift as compensation, put it under “employee benefits.” It should be registered as an “owner’s draw” if it’s a personal gift.
This means any item given by you, the owner, to someone on your team for a purpose that isn’t business-related but paid for out of your business account. The general rule for client gifts is that they are tax deductible up to a maximum of $25 per client.
Employee gifts and bonuses, such as gift cards, are subject to IRS regulations. A gift card (also known as a gift certificate) is a form of stipend. Employees may receive fringe benefits on top of their normal pay. Depending on the nature of the fringe benefit, it could be taxable or nontaxable.
Federal taxes apply to taxable fringe benefits like income, Social Security Benefits, Medicare and Federal Unemployment insurance.
Is The Value Of Gift Cards Taxable?
Gift cards are taxable. Employee gift cards are considered cash equivalent products by the IRS. Gift cards, like cash, must be included in an employee’s taxable income, no matter how small the value.
There is, however, one exception. You may be able to exclude gift cards given to employees for a particular low-value item (e.g., a ham). If you’re unsure if you ought to withhold taxes on gift cards, consult a tax professional. Record the value of all such gift cards and pay the relevant taxes.
A gift card is almost like a supplementary wage. As a result, you would withhold taxes on gift cards in the same manner that you would withhold taxes on any other supplementary pay. Withhold federal income, Social Security, and Medicare taxes from a gift card’s value. You may be required to withhold state income tax if necessary.
It’s important that you understand the value of keeping track of every gift you have spent money on for your company. Make a separate record of the qualified expenditures (typically by charging them to a separate account in your accounting records so that a full deduction can be claimed.)
Furthermore, it is best to keep track of a summary of the gift, the cost of the gift, the date the gift was purchased, the commercial intent of the gift, and the individual receiving the gift’s professional relationship with the taxpayer.
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.