Benefits and Compensation, HR Management & Compliance

Ask the Expert: Are All Gift Cards Taxable Income?

Can we give gift cards to employees without them being considered taxable income? Is there a minimum amount that would not be considered taxable income?

Internal Revenue Code Section 102 covers the general rule that excludes property acquired “by gift, bequest, devise, or inheritance” from gross income. However, section (c)(1) of this law provides that employee gifts (including prizes and awards) – specifically “any amount transferred by or for an employer to, or for the benefit of, an employee” – may not be excluded from gross income.

So the general rule is that employee gifts and prizes are counted as income. However, as with most laws, there are exceptions.

“De minimis” fringe benefits are excluded from income. De minimis benefits are those that are “so small as to make accounting for [them] unreasonable or impractical.” For example, “occasional tickets for entertainment events; [certain] holiday gifts; flowers, fruit, books, etc., provided under special circumstances, etc.”

The IRS has ruled that items with a value exceeding $100 cannot be considered de minimis. Additionally, cash and cash equivalent gifts/prizes (such as gift certificates) cannot be considered de minimis or excluded from income because there is no difficulty in accounting for such prizes.

So the short answer would be that any gift card that serves as a cash equivalent – for example, a $25 gift card or a Visa cash card – would always be taxable regardless of the amount because there is no difficulty in accounting for the monetary value of the gift.

However, a gift with a less obvious cash value – such as a holiday turkey or tickets to an event – would not be taxable as long as the value did not exceed $100.

For more information, the IRS provides a very detailed and helpful guide to these fringe benefits.

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