When it comes to team holiday gifts, gift cards are super convenient. They’re easy to buy, so let your team pick what they like. But there’s a tricky side, too: the tax rules. Uncle Sam gets involved. Don’t worry; this article will help you understand the tax stuff and navigate the rules for gift cards and other non-cash perks.
And here’s a tip: Giftpack’s company branded swag can make gifting easy. It keeps things fun and personalized, taking one more thing off your to-do list.
Are Gift Cards for Employees Taxable?
Gift cards for employees are not just a thoughtful way to show appreciation. They're also considered taxable income by the IRS.
This matters because when you give gift cards, their value must be reported as wages on the employee's W-2 form, just like their regular paycheck. Employees then must pay income taxes on the gift cards, which can feel less festive.
Withholding Taxes: What Employers Need to Know
When you hand out that $100 gift card, the employee might take home something closer to $72, thanks to withholding taxes. That’s because you, the employer, must withhold federal income tax, Social Security, and Medicare taxes. If you operate in a state with state income taxes, those must also be withheld. Keeping track of who gets what and when helps with accurate reporting at the end of the year.
The Bright Side: Business Deductions
While it might seem like gift cards have many strings attached, there’s good news. Businesses can deduct the cost of these gift cards as an employee compensation expense, which helps offset some of the tax burden. It’s a win-win: employees feel appreciated, and your bottom line doesn’t take a hit.
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What are De Minimis Fringe Benefits?
The IRS describes de minimis fringe benefits as minor perks that tracking their value and frequency becomes impractical. Think of occasional snacks, coffee, or low-value holiday gifts. While these can qualify, gift certificates that can be exchanged for general merchandise or hold cash-like value don’t cut.
What Value Pushes the Limit of De Minimis?
No set dollar amount defines de minimis, leaving you in a bit of a gray area. The IRS offers examples like $21 per month for transit passes, translating to $252 annually. Yet theater or sporting event tickets that cost over $100 could still qualify. It’s less about the exact number and more about the reasonableness of tracking it.
Specified-Item Gift Cards vs. General Merchandise Gift Cards
Gift cards can be a thoughtful way to show appreciation to employees, but they also have tax implications. The IRS considers gift cards redeemable for general merchandise or with a cash equivalent value taxable income. Even a small denomination card to a general retailer falls into this category.
If a gift card is limited to a specific item like a ham or movie pass, it may qualify as a de minimis fringe benefit, exempt from taxation. The key is that the item must be minimal in value, infrequent, and impractical to account for. Despite these nuances, the safest approach is to treat all gift cards as taxable income to stay on the right side of IRS regulations.
Custom AI-Powered Gift Selection Process
At Giftpack, our driving force is to simplify the corporate gifting process while maximizing the impact of each gift. Utilizing our custom AI algorithm, we create highly customized scenario swag box options for you. We deliver globally and have an extremely user-friendly platform. We curate the most fitting gifts from a vast catalog of over 3.5 million products worldwide (which is ever-increasing).
By carefully considering an individual's basic demographics, preferences, social media activity, and digital footprint, we tailor each gift selection process regardless of whether the recipient is an employee, a customer, a VIP client, a friend, or a family member. With a wide range of locally and globally sourced gifts, we ensure that personalized gifting is accessible and achievable on a large scale, delivering meaningful connections across the globe. Try Giftpack's client gifting service for free today.
Are Gift Cards Good Gifts for Employees?
Gift cards are a practical and appreciated choice for employee gifts. Research shows that 44.07% of employees rank gift cards as the best reward. 90% of employees prefer them over cash bonuses. Gift cards offer freedom and flexibility, allowing employees to choose what they truly want and shop at their convenience. This makes them personal, practical, and a powerful motivator.
Freedom of Choice and Flexibility
Gift cards allow employees to choose their rewards. This is particularly important in a diverse workplace where everyone has different tastes and preferences. Employees can buy something they genuinely want or need when they receive a gift card, making the reward more meaningful. Gift cards can also be used during sales or promotions, allowing employees to get more value for their money and enjoy their rewards even more.
Psychological Benefits of Gift Cards
Gift cards also offer psychological benefits. Studies show that people tend to perform better when rewarded with something they desire, rather than cash.
Cash is often used for necessities, while gift cards can be used for something special or fun. By giving gift cards, employers can help employees feel appreciated and motivated, improving performance and job satisfaction.
A Thoughtful and Effective Gift
Gift cards are a thoughtful and effective way to show employees that you value their hard work and want to give them something they'll genuinely enjoy. They offer freedom, flexibility, and psychological benefits that can lead to improved performance and job satisfaction. Don't overlook the power of a simple gift card when it comes to employee gifts.
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Open-loop vs Closed-loop Gift Cards
Open-loop gift cards like Visa and Mastercard prepaid cards are a favorite because they offer flexibility. These cards can be used anywhere their respective networks are accepted.
This means recipients are free to choose what they want, whether it’s groceries, gas, or a treat for themselves. Open-loop cards are issued by banks, adding a layer of trust and reliability. They’re a great choice when you want to give a versatile gift that suits anyone’s needs.
Closed-Loop Gift Cards: Personal Touch with Purpose
Closed-loop gift cards provide a more personal touch. These cards are specific to a store or brand, like Starbucks or Target, making them ideal for people with a favorite place to shop. They’re often accessible to activate, which can save you money.
Closed-loop cards show thoughtfulness as they reflect the recipient's preferences. They’re perfect when you know someone’s favorite haunts and want to give a more tailored gift.
What is The Best Gift Card to Give Employees? 15 Gift Cards Ideas
1. Amazon Gift Card: The Ultimate Employee Gift
Amazon gift cards are a prime choice for employee gifts. Employees can pick from various products, from tech gadgets to fashion.
These cards can also cover subscriptions like Amazon Prime and Audible, broadening their use. The speedy shipping and easy returns make Amazon gift cards a no-brainer for bulk buying.
2. Visa Reward Card: A Top Pick for Employee Rewards
Visa gift cards are highly versatile and accepted everywhere. This makes them ideal for remote employees or those traveling internationally.
They’re secure, letting employees pay without sharing personal financial details. You can even add your company logo for a nice personalized touch.
3. Mastercard Prepaid Gift Card: Versatile and Secure
Mastercard prepaid cards offer similar versatility to Visa and are accepted at any location that takes Mastercard. They’re great for personalization, too, with options to add company logos and messages. Just keep in mind any associated fees and expiration dates when comparing options.
4. Target Gift Card: Shopping Made Easy
Target gift cards are a hit, allowing employees to shop online and in-store. The range of products is extensive, from home goods to groceries, and Target’s frequent discounts make the card go further.
5. Walmart Gift Card: A Practical Choice
Walmart gift cards come with various designs, perfect for marking special occasions. They can be used in-store and online, offering flexibility for employees. With Walmart’s widespread presence and competitive prices, these cards are a practical choice.
6. Spotify Gift Card: Music for the Soul
For the music lover in the office, a Spotify gift card is spot on. It’s a great gift for employees who already use Spotify or those curious about trying it out. It’s a thoughtful gesture that shows you know their tastes.
7. Netflix Gift Card: Binge-Worthy Entertainment
If you have employees who love staying in and watching TV, a Netflix gift card is a brilliant option. It’s perfect for those who already have Netflix or those interested in trying it for the first time.
8. Uber Gift Card: A Ride at Their Fingertips
Whether your employees love going out on weekends or need a ride in a new city, an Uber gift card is an intelligent choice. It’s a practical gift that shows you care about their needs outside of work.
9. Apple Gift Card: For the Tech Enthusiast
An Apple gift card is perfect for employees who love technology. They can use it to buy new Apple products or services like iCloud storage. It’s a thoughtful gift for your tech-savvy staff.
10. DoorDash Gift Card: Delicious Convenience
For employees who love good food but prefer staying in, a DoorDash gift card is a great choice. It’s a convenient gift that they’ll appreciate and enjoy.
11. Airbnb Gift Card: Travel Made Easy
An Airbnb gift card is perfect for employees who love to travel. It’s a versatile gift that can be used for a vacation or even a midweek staycation. It’s a great way to show you value their work-life balance.
12. Starbucks Gift Card: Fuel for the Day
Everyone loves a good cup of coffee, and a Starbucks gift card is a great way to treat your employees. It’s a simple but thoughtful gift that they’ll appreciate.
13. Barnes & Noble Gift Card: A Treat for Bookworms
A Barnes & Noble gift card is perfect for the book lover in your office. It’s a thoughtful gesture showing you know and appreciate their interests.
14. Nike Gift Card: For the Sports Enthusiast
A Nike gift card is a great choice if you have an employee who loves sports. They can use it to buy new sports gear or apparel, making it a practical and thoughtful gift.
15. The Home Depot Gift Card: Perfect for Home Improvement
A Home Depot gift card is a great choice for employees who are renovating or have recently bought a new home. It’s a practical gift that shows you care about their personal lives and goals.
What Can I Give to My Employees That Is Not Taxable?
Nontaxable Gifts That Work Like a Charm
Consider nontaxable fringe benefits if you want to make your employees happy without adding tax burdens. These perks can boost morale, show appreciation, and keep Uncle Sam out of your wallet.
Office Essentials to Boost Spirits
Consider giving useful office supplies like desk plants or notebooks. These items are practical and help create a comfortable work environment. They're perfect for maintaining productivity and creativity without crossing into taxable territory.
Snacks and Sips That Make the Day Sweet
Employee snacks are a great nontaxable option. These goodies keep everyone energized whether it's coffee, doughnuts, or soft drinks. Plus, who doesn’t love a good snack break?
Gift Certificates for a Little Extra
Sometimes, you want to offer more than just snacks. Gift certificates for occasional meal money or transportation fares can be a thoughtful touch. This keeps things light and fun, without any tax headaches.
Entertainment Tickets: A Night Out on the House
Surprise your team with tickets to a theater or sporting event. These experiences provide a break from the daily grind and are usually nontaxable if they don’t exceed certain limits.
Heartfelt Gestures for Special Moments
When life throws curveballs, simple gestures can mean a lot. Holiday gifts, flowers, fruit, books, or any token offered for special circumstances like illness or individual recognition can make a big difference. Keep them under $100 to avoid any tax implications.
Tech Perks: The Gift That Keeps on Giving
Providing a cell phone for business purposes is a nontaxable benefit that employees will appreciate. It’s a practical perk that can make work life much easier.
Overtime Goodies That Show You Care
Meal money or other qualifying expenses for working overtime are great options. They offer practical support when employees are going the extra mile.
At Giftpack, we make corporate gifting easy and effective. Our client gifting service uses AI to curate personalized gifts from over 3.5 million products. Try Giftpack's client gifting service for free today.
FAQs on Employee Gift Cards Taxes
Gift cards might seem simple, but the IRS sees them differently. In their eyes, gift cards are cash equivalents. This classification means they’re taxable, just like regular wages. So if you’re handing out gift cards at work, remember you’ll need to report them on Form W-2. The IRS treats them like cash because they have a clear value and are subject to taxation.
Gift Card Tax-Free Threshold: Spoiler, There Isn't One
When it comes to gift cards, there’s no tax-free amount. Unlike small gifts like a mug or a pen, gift cards don’t qualify for the de minimis fringe benefit exemption. This is because their value is clear and they’re essentially as good as cash. Regardless of the amount, the IRS considers any gift card taxable income.
Can the IRS Track Gift Cards? Not Directly
The IRS cannot track gift cards in real-time. Reporting them relies on the honor system. But honesty is the best policy here because unreported gift cards can become a problem if there's an audit. Transparency in reporting helps avoid potential headaches later on.
De Minimis Fringe Benefits: Not for Gift Cards
The IRS's de minimis fringe benefits rule is about small perks that you don’t need to report because they’re too trivial. Think of things like the occasional use of a company copy machine. Gift cards, though, don’t fit this category. Their value is clear and considered income, so they don’t get the de minimis treatment.
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Build a Meaningful Employee Recognition Program With Ease with Giftpack's Client Gifting Service
At Giftpack, our driving force is to simplify the corporate gifting process while maximizing the impact of each gift. Utilizing our custom AI algorithm, we create highly customized scenario swag box options for you. We deliver globally and have an extremely user-friendly platform. We curate the most fitting gifts from a vast catalog of over 3.5 million products worldwide (which is ever-increasing).
By carefully considering an individual's basic demographics, preferences, social media activity, and digital footprint, we tailor each gift selection process regardless of whether the recipient is an employee, a customer, a VIP client, a friend, or a family member. With a wide range of locally and globally sourced gifts, we ensure that personalized gifting is accessible and achievable on a large scale, delivering meaningful connections across the globe.
Try Giftpack's client gifting service for free today.
Make your gifting efficient and improve employee attrition rates with Giftpack AI
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