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Are Employee Gift Cards Taxable?
If you give your employees a gift card, is that considered a "de minimis" non-taxable gift? What if it's more (or less) than $25 in value?
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Still looking for that last-minute gift idea for your employees? Gift cards are always a great go-to, but you’ll still need to account for a gift card or any cash-related gift given to an employee for tax purposes.
Isn't a gift card considered “de minimis” by the IRS?
Historically, there was a threshold of $25 to be the maximum amount that could be gifted before having to be taxed, but that is no longer the case. A gift card or cash equivalent is now taxable, regardless of the amount. Why? The IRS has specified that there are several things employers can gift to employees that are “de minimis,” which refers to something that is so small and provided so infrequently that it’s unreasonable or impractical to account for it. Because gift cards are essentially the same as cash, they are considered an easy item to be accounted for and, therefore, taxable.
Bottom line: no matter the amount, a gift card given to employees is not considered a de minimis fringe benefit. Instead, it should be included in wages on Form W-2 and subject to tax withholdings.
What can I give to my employees that isn’t taxable?
Gifts that may be considered de minimis include:
- Occasional employee use of photocopier
- Employee snacks (coffee, doughnuts, soft drinks, etc.)
- Tickets for entertainment, such as theater or sporting events
- Holiday gifts, such as a turkey or ham
- Flowers, fruit, books, etc., provided under special circumstances (illness, death of a family member, individual recognition)
- Personal use of a cell phone provided by an employer for business purposes (see below)
- Meal money or other qualifying expenses when working overtime
Be sure to keep any of these qualifying gifts to a minimum and under $100, as the IRS has ruled that if a gift ever exceeds the value of $100, then the item must be taxed as a whole. That means that even a flower arrangement given as a form of congratulations or sympathy should be less than $100 or else the employee will need to be taxed for the full value of the flowers. (Heartless, right?)Related articles:
Is a cell phone considered a tax-free de minimis fringe benefit?
Formerly, personal calls on a company-issued or reimbursed personal cell phone had to be tracked to determine what percentage of minutes was for personal v. business use, which was usually an accounting nightmare. Cell phones that are provided to employees (or reimbursed personal cell phones) for business use can be used for personal calls and still remain tax-free as a de minimis fringe benefit, assuming any of the following reasons for providing the cell phone are met (source: bizfilings.com):
- The employee may need to be available anytime for work-related emergencies;
- The employee must be able to stay in contact with coworkers outside of normal working hours;
- The employee must be able to contact clients or customers when away from the office; or
- The employee needs to speak with clients located in time zones outside of the employee’s regular work schedule.
For more information about de minimis fringe benefits, please visit the IRS site.