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March 28, 2010
Gift Cards as an Incentive within Your Organization

In a BLR webinar entitled ‘Incentive Pay: Best Practices for Designing and Managing Pay-for-Performance Plans’, Dan Kleinman discusses the guidelines associated with giving gift cards, gift certificates, coupons or similar incentives within an organization. He provides the following information regarding how gift cards and similar incentives should be handled:

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  • If an employer gives its employees gift cards such as a gift card to the grocery store or a shopping mall, the gift will be treated as income and is subject to payroll taxes and withholding, along with the rest of the employees' income
  • Many employers are in violation of the that such gift cards should be treated as income, especially around the holidays, because they assume the gift falls under the de minimis rule
  • De minimis fringe benefits are not taxable, because they are not considered cash. For example, if a company gives its employees a coupon specifically for a free turkey or a ham at a particular store during the holiday season, this falls under the de minimis rule and is not taxable
  • Gift certificates that can be used like cash do not fall under the de minimis exception. If the employer gives its employees a $25 gift card to the same store, but not specifically for a turkey or ham, the gift card is taxable as income

Dan Kleinman is the principal of Dan Kleinman Consulting (www.dankleinmanconsulting.com), a California-based compensation and human resource consulting firm. He can be reached at info@dankleinmanconsulting.com.

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