Tax Implications of Gift Cards
Updated: Sep 24, 2020
Taxes.. Probably not the most attractive cluster of letters someone can utter. When you think of Salary and commissions you might automatically think of someone coming down from ADP (or whatever payroll provider) to take a nice little chunk out of those pre-taxed wages. Maybe you’ve also experienced receiving a gift card from work for a great job, or that crazy conference your brain can’t fully remember, and you do not really remember filling out a 1099 or a W-2 for that Starbucks card.
You might ask yourself, well where do larger scale gift card transactions and employee rewards land on this scale?... And yes, you probably have the right answer! When it comes to taxing gift cards as income it becomes very difficult to give an exact answer. The IRS does classify Gift Cards as a ‘Cash Equivalent’ and therefore falls under some similar rules to cash-based exchanges. Like many tax questions it’s possible to find certain exemptions and ways to file, which is best left to your tax team.
Gift cards can also sometimes classify as De Minimis Fringe Benefits. According to the IRS website, “In general, a de minimis benefit is one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical”. Besides the extremely vague definition of ‘low amounts’, low amounts for recognition here and there are rarely ever reported and do not typically fall under heavy scrutiny. One of the explicit cases classified under De Minimis are Anniversaries and Birthdays. These are common times where the IRS grants that you can provide an untaxed reward that is tied to that employee’s achievement. All of these types of awards are less debated and no one’s really going to chase after Doug for a $50 AppleBees card he earned for being in Product for 5 years.
The kicker is that when it comes to reporting the ‘income’, the IRS leaves the burden of reporting gift card income to the employee or gift card receiver. Throughout discussions with various companies, I’ve heard a few different answers that accrual amounts under $500 or $1,000 is okay, but after a while the IRS might actually switch the burden of reporting to the actual employer/ partner that issued the gift cards. When it comes to larger amounts of money, it’s always a best practice to consult with your tax team and develop the best strategy. With all funds transferred through the StoreCash system, we are more than happy to provide reports for tax season if requested.