I often see the question asked by a Payroll representative, “is a gift card taxable?” The answer to the question is usually pretty simple. If the recipient of the gift card is receiving it due to their employment relationship, it’s taxable. Also gift cards are considered to be a cash equivalent and therefore are considered taxable. Double whammy!
One way to be able to give your employees the gift card value you were intending to is to use the “gross up” method. When grossing up you, the employer, are picking up the tab for the taxes and this can become expensive. This is a reverse calculation used to give your employee a set amount. Remember no matter how large or small any value gift card is taxable! See the United States Office of Personnel Management (policy can be found here) for more information on “grossing up”.
If you’d like to avoid this scenario all together then your best option is to give your employees a tangible gift that is not the equivalent to cash or can be converted to cash. This gift must also be low enough in value to be considered de minimus. If the value of the gift is too large, it too will become taxable. De minimus benefits are coved by IRS code 132(a) (4) which can be reviewed here.
About the Author
Becky Gideon began her career in payroll with the Marion County Public School Payroll Department in 1998. She worked her way up through the department and became Supervisor in June of 2015. She joined the Board of FASBO this year and is the recent Co-Founder of the Florida Public Schools Payroll Group with Pamela Hendrickson of Hillsborough County.