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Are Gift Cards Taxable?

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December 9, 2020

Here is a common question that we receive: “Are gift cards given to my employees taxable?” Keep reading to find out!

Whether you are gifting employees with gift cards for Christmas or it’s just a random thank you or gift of appreciation, you really need to know the tax implications of gift cards because you might be surprised to learn that gift cards are actually taxable income to your employees! Stick around because I’m going to tell you why PLUS I show you the step by step process on my YouTube video on how to record the gift card as taxable income.

Yep, that’s right! When you give an employee a gift card as a gift, the value of that gift card is actually considered to be taxable income to the employee and you need to record that so it shows up on their year-end W2. Before I get into the details, let’s take a look at IRS Code 132(a)(4). Wait, did I just lose you? Stick around! Don’t worry, go ahead and give that link a read, or if you would like to hear a more in-depth explanation, make sure to reference my YouTube video. I’m not going to bore you with IRS code the entire time, I just want to show you the facts and where you can find this proof. 

So, basic review after watching my video, if you are gifting random $5 Starbucks gift cards every now and then, you don’t need to include that in taxable income; however, if you are gifting a few hundred dollars on a gift card, you definitely need to include that as taxable income.

Now that you know gift cards are indeed taxable income to your employees, you might be wondering how on earth to record that so that it shows up on an employee’s W2. Well, don’t fret, because I go over that process as well in my YouTube video and give you step-by-step instructions to give you peace of mind as you are learning this!

If you haven’t heard of Gusto, you are missing out! Gusto is an amazing cloud-based payroll software where you can easily and affordably pay your employees and contractors. I personally use Gusto as my payroll software here at Steadfast, and a large majority of our clients use it as well. If you’re looking for payroll software, click my link right here to give Gusto a try and they’ll even send you a gift after running your first payroll when you use my referral link.

Since I love Gusto so much, in my video, I walk through the process of how to run a one-time, off-cycle payroll for a gift card. Now, if you don’t use Gusto and you already use payroll software that you love, stay tuned in my video and keep watching because you should be able to apply the principles and general guidelines I’m going to go over and easily run a similar payroll for your employees.

So, there you have it. Now you know what your responsibility and tax implications are when you give gift certificates to your employees, but you also know how to run payroll so that the gross pay shows on their W2.

You’ve now also seen how easy it is to use Gusto and you can seriously run payroll in less than 5 minutes and they have plans as low as $20 per month so be sure to click my referral link to check them out, plus don’t forget…after you run your first payroll with them, they’ll send you a free gift so it’s a WIN-WIN.

Also, don’t forget to subscribe to my channel because I release new videos each and every week and I can’t wait to see you there next time! I hope this information was helpful to you. If it was, please make sure to leave a comment below, or if you signed up for Gusto, make sure to let us know what you think about it in the comments!

*The Gusto link is a referral link and I might receive some sort of compensation if you sign up using that link.

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