Question: Are there tax or IRS implications if we give our employees a gift certificate or gift card instead of a cash bonus?
Answer: According to the IRS, cash or “cash equivalents” (such as gift cards) are always taxable. However, you can exclude the value of a de minimis (minor) benefit you provide to an employee. If you offer the employee a different type of recognition reward (such as a dinner out or tickets to an event), it may not be taxable. While the IRS doesn’t specifically put a dollar value on what constitutes “de minimis,” it is defined as “any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare.”
For more information, the IRS Publication 15-B Employer’s Tax Guide to Fringe Benefits offers a chart that shows the tax excludable value of some fringe benefits.
