Are gift cards taxable employee benefits?

As an employer, it’s important to supply your labor benefits and show appreciation for their difficult work. After all, improving your employees’ acquisition and occupation restitution helps trim employee turnover.

Gift cards are a elemental measurement to springiness your labor a token of appreciation, whether arsenic a coming aliases an worker reward. But earlier you make a gift paper acquisition for everyone connected your team, location are a fewer things you request to know.

You mightiness beryllium wondering what nan rules connected gift cards are and what you must do to legally administer a gift certificate. This article will explicate worker fringe benefits, whether gift cards are taxable for employees, and what alternatives are available.

Explore each nan fringe benefits you tin connection labor successful our complete guide

Is a gift paper a fringe benefit?

Since a gift certificate isn’t a general employee benefit, specified arsenic group wellness security aliases a health reimbursement arrangement (HRA), nan IRS considers it a fringe benefit. “Fringe benefit” is simply a word that tin mention to immoderate worker benefit, but nan IRS uses it to categorize definite informal benefits successful Publication 15-B1.

Fringe benefits tin beryllium taxable aliases tax-free, depending connected really nan IRS classifies nan benefit. If a fringe use is taxable, it whitethorn beryllium taxable to national income taxes, Social Security, Medicare, and national unemployment tax, aliases FUTA.

There are besides nontaxable fringe benefits, specified arsenic definite commuter benefits and acquisition benefits. De minimis benefits are besides excluded.

Is location taxation connected gift cards?

Yes, gift cards are considered taxable income erstwhile offered to employees. The IRS considers it cash-equivalent, meaning you must study nan card's worth connected an employee’s Form W-2 for illustration a wage.

This is nan aforesaid arsenic taxable fringe benefits specified arsenic worker stipends, which are besides reported arsenic wages connected employees' W-2s.

Business owners must withhold national income tax, Social Security tax, Medicare tax, FUTA, and immoderate authorities income taxes if gift cards are taxable successful your state. In practice, this tin look for illustration offering gift balances of $72 alternatively of $100, for example, if you return into relationship taxation withholding. Or, it tin mean accounting for much than nan card's worth if you want labor to person nan afloat $100 amount.

What are de minimis benefits?

A de minimis fringe use is thing offered to an worker that’s of small worth and offered infrequently.

According to IRC Section 132, de minimis benefits include:

• Occasional usage of an agency photocopier
• Occasional snacks, coffee, aliases different nutrient and drink
• Occasional tickets for events
• Holiday presents
• Occasional compensation for meals aliases a proscription disbursal that let labor to activity overtime
• Group-term life security for a spouse aliases limited nether $2,000 look value
• Inexpensive items specified arsenic flowers, fruit, books
• Personal usage of an employer-provided compartment phone

Based connected nan examples, you mightiness presume that a gift paper is simply a de minimis fringe use since it tin clasp small worth and mightiness count arsenic a mini gift. However, nan IRS excludes rate and gift certificates from being counted arsenic de minimis benefits unless provided solely arsenic occasional repast money aliases for proscription fees truthful that your labor tin activity overtime.

That’s because nan cards are rate equivalents, which is simply a nonstop shape of payment.

But, immoderate gift certificates whitethorn count arsenic a de minimis use if you supply them to acquisition a circumstantial point pinch a debased value. The IRS grants these taxation exceptions case-by-case, truthful you’ll want to consult pinch your taxation professional.

Should you connection gift cards to employees?

With nan complexities surrounding gift paper withholding, they aren’t ever an perfect worker benefit. While your labor will apt beryllium okay pinch immoderate magnitude they receive, nan further accounting activity to find what paper magnitude to acquisition tin beryllium an unnecessary headache.

Employees don’t spot gift cards arsenic a existent worker use for illustration healthcare aliases a status account. To get nan astir bang for your benefits fund you’re amended disconnected choosing a much general worker use to get nan astir bang for your benefits budget.

Thankfully, location are alternatives to offering gift cards to your employees.

Alternatives to gift cards

You should connection your unit an employee stipend if you want to supply nan aforesaid elasticity arsenic a gift paper without nan added complexity.

Employee stipends alteration your labor to person reimbursements for various disbursal categories specified arsenic health, wellness, master development, proscription costs, meals, distant activity and more. You simply group a monthly allowance disposable for reimbursement, for illustration a gift paper balance, and o.k. expenses up to that amount.

If you don’t want to spell pinch a recurring monthly allowance, you tin connection your labor a stipend arsenic a one-time spot prize of immoderate amount, akin to providing a one-time gift card.

Let’s spell complete a fewer of nan different stipends and really they’re used. Health stipends let you to reimburse labor for their aesculapian costs, including security premiums, out-of-pocket expenses, and intelligence wellness needs. Health stipends are akin to HRAs, isolated from you tin reimburse labor for much expenses than those listed connected IRS Publication 502.

You tin reimburse labor for their wellness expenses and activities pinch a wellness stipend. This tin thief your labor unrecorded a healthier lifestyle, destress, and yet go much productive astatine work.

Possible expenses that you tin reimburse pinch a wellness stipend include:

• Exercise classes
• Exercise equipment
• Gym aliases workplace memberships
• Wearables and devices
• Wellness mobile apps

Remote work stipends are different fantabulous action for organizations pinch distant employees. By offering a monthly allowance for distant work, your labor tin get reimbursed for their location net access, compartment telephone bills, and location agency setup. This ensures your distant workers person each nan devices and bandwidth needed to do their jobs effectively.

One downside to stipends is that they’re considered taxable income, for illustration gift certificates. However, they transportation acold greater benefits to your labor and your organization.

Conclusion

While offering gift certificates is simply a awesome measurement to boost worker engagement and show your labor your appreciation, they must beryllium reported connected an employee’s Form W-2 arsenic supplemental wages, and you must withhold taxes.

Employee stipends are a amended action for organizations looking to connection taxable, personalized benefits regularly. By offering a stipend, you tin attract and retain apical talent, prosecute your existent employees, and turn your business.

If you’re fresh to connection personalized worker benefits, PeopleKeep tin help! Our HRA and worker stipend management package helps organizations for illustration yours negociate their benefits successful conscionable a fewer minutes each month.

Schedule a telephone pinch a personalized benefits advisor to spot really worker stipends tin activity pinch your organization

1. https://www.irs.gov/publications/p15b

Originally published connected March 10, 2023. Last updated March 10, 2023.

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