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Gift Cards for Specific Vendors

edited February 19 in Payroll Advice

Hi All! My company is planning to start some kind of reward program and give out gift cards to employees. Everything I have ever read or been taught tells me that gift cards are taxable.

My Controller is telling me that she did research last year and found that as long as the gift card is to a specific vendor and not a Visa gift card that can be used anywhere, then the gift card would not be taxable. Her examples are gift cards to Restaurants and Honey Baked Ham.

Has anyone heard of this?


  • edited February 19

  • I have heard of that and several hundred other stories related to gift cards. May I suggest that you read Pub 15B and look at the actual rules. IRC 3401/3402 say that EVERYTHING of value is fully reportable as wages until/unless a formal exception is supported. The exception you are looking for is De Minimus and what you just cited is not part of the De Minimus rules. No more then the famous $25 rule that IRS says never exists.

    HOWEVER, De Minimus might apply if you ignore everything you just said and stay with actual rule. Company provided coffee is non-taxable solely because the tracking costs is excessive compared to the value. If something is rarely done, of little cost and hard to track, you have the state of a De Minimus argument. Fail any of those three arguments and you likely have failed De Minimus. If hypothetically I make my staff work late with little advance notice, this does not happen very often, and I pay with cash (or one of your gift cards) this is probably De Minimus. Please note that the use of the gift card is a non factor here. If instead I give Bob a gift card, any gift card, for being a great employee, that is wages, because it based on job performance and I know who I gave it to. Exactly the same as if I gave Bob cash or cocaine.

  • Cocaine in lieu of wages. LOL. Reminds me of IRS Pub 17:
    "Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity."

    PS David is spot on. If you get an ACTUAL Turkey for Thanksgiving from your boss, no need to report. BUT if you get a grocery store certificate to be exchanged for a free turkey, you may need to report (it's easy to off-load cards/certs at IRS Pub 525:
    "If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, don’t include the value of the gift in your income. However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved."

  • Please note that the turkey is non-taxable, not because it or chickens or eagles are inherently non-taxable, but because IRS very specifically wrote a turkey exception into the De Minimus rules. If you gave out turkeys every week/month, it would no longer be De Minimus.

    Even without Pub 17, per IRC 3401/3402 EVERYTHING of value are wages unless specifically excluded. Pub 17 is just the a variation of the Al Capone rule.

  • Per David "If hypothetically I make my staff work late with little advance notice, this does not happen very often, and I pay with cash (or one of your gift cards) this is probably De Minimus."

    I believe David is talking occasional meal money (i.e. a meal). Cash or gift cards simply for working late is compensation for services and is fully taxable and you may also run into FLSA problems if it is not included in the regular rate of pay if it does not otherwise qualify as overtime compensation (grin).

    I've not researched it lately, but my impression was that a gift certificate for a turkey where the employee goes to a particular store and selects a turkey from a selection of turkeys specified on the certificate by the store and the price and weight of the turkey vary, then this is the same as giving the employee a turkey. That is, the certificate cannot offer dollars off the purchase of a turkey, but must be for a group of turkeys purchased by the employer and the store is simply distributing them for the employer. I did consider that the employee might get cash by selling the certificate but the employee could also sell a turkey.

    BTW, the $25 is an actual limit - but not on de minimis fringes - it is the amount that may be deducted as expense for qualifying business gifts given to any individual during a calendar year. Note the limit is $25 for each individual recipient and not for each gift. Generally, items given to employees are not gifts, but compensation since the gift arises out of the employment relationship.

  • Actually I was not talking cash at all. I was talking about buying staff actual food to eat at work while working late. Cash is ALWAYS taxable. Cards are almost always taxable. Other then that, what Pat said.

    One of the keys with De Minimus is it always has to be rare and unpredictable, and "too small to track". Change any of the points, you lose the De Minimus status. If you had a really smart coffee machine that could cheaply and accurately track who drank what cup of coffee, then coffee would no longer be De Minimus, unless IRS writes a coffee exception.

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