How To Get Tax-Free Voucher For Employees Staff – A lot of companies and employers show appreciation for their staff’s hard work by giving them gift certificates or vouchers. A lot of small business owners give their employees or staff members thoughtful gifts as a symbol of gratitude for their dedication, effort and loyalty. After all, enhancing staff experience and satisfaction will result in a low turnover rate and boost their morale. Vouchers or gift cards are an incredible option that work for all occasions, as your staff can use them whenever they want.
These vouchers/ gift cards are easy to purchase and store. But before providing them with vouchers for the next holiday party, it is always a good idea to check whether you have to pay taxes on those gift cards or not. In this comprehensive guide, we will help you unravel the intricacies of employee gift taxation. We will help you with every step to ensure compliance with the law and informed decision-making.
Highlights of this Post
Key Takeaways
- Eligibility for tax-free vouchers includes non-cash, minimal value items provided infrequently.
- Gift cards and cash equivalents are always taxable and must be reported as income.
- De minimis fringe benefits do not include gift cards or cash-related gifts.
- Special provisions allow non-cash achievement awards to be tax-exempt under specific conditions.
- Employers must report gift cards and vouchers on employees’ W2 forms, ensuring proper tax withholding.
What Are De Minimis Fringe Benefits ?
When it comes to offering vouchers or gift items, there are a lot of things that employers or companies can give employees as a form of de minimis fringe benefits. According to the IRS, De Minimis Fringe Benefits are gifts that are so small and provided infrequently that it would be impractical or unreasonable to account for them.
In short, a de minimis fringe benefit is something so minor that the IRS does not consider reporting its monetary value. Therefore, employees pay zero federal or state income tax for de minimis benefits. It can be challenging to determine what contributes to de minimis fringe benefits, as the IRS has never put a particular dollar amount on these benefits.
The IRS has provided helpful guidelines on the same. Unfortunately, a cash-related gift or a gift card is not considered minimal, even if it is less than $25. Gift cards or vouchers are considered cash-equivalent items that should be reported as taxable income. They fall under the category of cash-equivalent fringe benefits. In other words, the value of the vouchers or gifts should be included in an employee’s wages and should be subject to withholding for Medicare and Social Security taxes.
Cash Benefits
Cash is considered a wage and offers no administrative burden to account for; therefore, it cannot be a de minimis fringe benefit. The only exception is occasional transportation or meal money to enable staff to work over time.
The cash benefit can be provided so that employees can work an extended or unusual schedule. The benefit is not excluded for regular scheduled hours, even if it includes overtime. The staff employee must actually work overtime to get the benefit. On the other hand, meal money that is calculated based on the number of hours worked is not a de minimis benefit and is a taxable wage.
Gift Cards or Vouchers
Cash or cash equivalent items that are provided by the employer are not excluded from income. The only exception applies to the occasional transportation fare or meal money that allows employees to work beyond their normal hours.
Vouchers or gift certificates that are redeemable for general merchandise or have a cash equivalent value are not considered de minimis fringe benefits, and so they are taxable. A voucher or certificate that allows the employee to get a specific item of personal property that is minimal in value and provided infrequently or is administratively impractical to be accounted for should be excludable as a diminished benefit, depending on your circumstances and facts.
Achievement Awards
Special provisions applied to allow exclusion from staff wages of particular employee achievement awards of tangible personal property given for safety or length of service. These awards include the following:
- Must be awarded as a part of a meaningful presentation.
- Can’t be disguised wages
- It can’t be cash, vacation, cash equivalent, lodging, meals, theater or sports tickets, or securities.
- Moreover, there are other eligibility criteria specific to the achievement and safety awards, including dollar limitations. For more information, see Publication 5137, Fringe Benefit Guide PDF or Publication 535 PDF for more information.
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Are Employee Vouchers or Gift Cards Taxable?
Cash gifts and gift cards of any amount are considered taxable income, according to the Internal Revenue Service. They are not covered under the de minimis benefits rules that are set forth in the Internal Revenue Service code.
The cards are considered taxable income in order to close the wage loophole that lets unscrupulous employers compensate employees only by avoiding paying any employment taxes on their wages. This is the reason why companies remain cautious while providing incentives or gift programs for their staff.
Any gift amount in vouchers or cash should be correctly reported by the IRS or to your country’s tax service authority for the right taxation on income tax that the staff receive as a part of their gross income. The only exception to the gift rule is vouchers or gifts made between the single individuals.
For example, a supervisor can give vouchers, gift certificates, or any other reward in any amount from the funds as personal property as a token of gratitude for service throughout the year to address a milestone like graduation, a wedding, or a birthday, or for any reason that is not connected to the business interest or performance.
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Why Are Vouchers/ Gift Cards Not Considered De Minimis Benefits By The IRS?
Historically, the maximum amount employees could give to their staff before having to be taxed was a threshold of $25, but this is no longer the case. A gift card or voucher is now taxable, irrespective of its value. The main reason is that gift cards or vouchers are cash equivalents that are easy to be accounted for, so they are taxable.
The Internal Revenue Service (IRS) changed the rule in order to protect employee pay. If the vouchers are gift cards and are exempt from taxes, it will encourage companies to restructure how their staff or employees are paid in order to save money on taxes. In other words, employees will receive lower compensation with the addition of more gifts, which will reduce taxable income as well as payroll taxes.
In a nutshell, no matter the amount, vouchers or gift cards given to employees are not considered de minimis benefits, according to the IRS. Moreover, they must be included in wages on Form W2 and subject to tax withholdings. It is also important to note that the other benefit that is similar to gift cards is treated as a taxable fringe benefit and is also subject to federal taxes.
Tax Implications of Giving Gifts or Vouchers in the United States of America
Tax laws in America covering employee gifts, vouchers, and award items may vary depending on the gift provided. A few fringe benefits are called de minimis benefits or are excluded from the taxation requirement.
Generally, non-cash gifts like tangible items, food, experience, like theater tickets, are not taxable compensation as long as they fall under the de minimis spending limit of $25. Vouchers or gift certificates for particular items can be covered under fringe benefit rules.
There isn’t any limitation to the amount of the de minimis holiday gifts, gifts, or other perks provided annually to an employee, so long as the value of the gifts per staff member in a calendar year does not exceed the amount of $1600. For vouchers or gifts over the de minimis benefits range benefit limit, staff have the option of grossing up the amount of the voucher or gift by adding a sufficient amount to the gift or voucher in order to cover the tax.
Employers can withhold the surplus amount in order to cover the taxation amount. This will enable employees to pay taxes on the voucher or gift amount or report it on their federal income tax return. According to IRS regulations, employers who give cash or equivalent compensation as a staff benefit or gift can deduct the gifts as business expenses while reporting.
Tax Implications of Giving Gifts or Vouchers to Staff in Europe & UK
The tax laws of Europe are different from those of the United States of America. In most U.S. states, there is a percentage-based sales tax that is added to the purchase price of a few goods.
Europe and the United Kingdom use Value-added Tax (VAT) that is included in the purchase price of goods. Gift vouchers, gift cards, gifts, or tickets are subjected to VAT like in America, as gift cards, vouchers, and cash are considered taxable wages given to employees by the employer.
Such wages should be reported on the employee’s tax return unless the company or employer creates a surplus gift and withholds a part to satisfy their tax. A few award plaques, such as tangible personal property and achievement awards, are not included in this criteria. Such nominal-value items must be deducted while tax does income.
The exemption from tax for fringe benefits in Europe and the United Kingdom exists just like in America. For instance, employers can provide non-cash benefits like tangible rewards, food items etc. as long as the gifts fall under the specified maximum exemption limit, which in most cases is €50, including VAT.
What Can I Give to My Staff That Is Not Taxable?
Employees who want to be generous towards their staff and show appreciation for their work can provide non-taxable fringe benefits as an amazing alternative to gift cards or vouchers. Following are some de minimis fringe benefits that are not taxable. Depending on IRS guidelines, frequency is the determining factor for de minimis fringe benefits.
Generally, gifts or vouchers that award a minimum value, like turkey or any food item, fall under the de minimis rule and are not taxable. These benefits work without adding any tax burden to both employees and employers. Following are the best alternatives that you can consider.
- Employee snacks like coffee, soft drinks, or doughnuts
- Personal use of a cell phone provided by the employer for business
- Group term life insurance for an employee, spouse, or dependent with a face value not more than $2000
- Traditional holiday or birthday gifts of the property, not cash with the low fare market value
- Occasional employee use of a photocopier
- Holiday gifts like ham or turkey
- Gift certificates for occasional transportation fares or meal money
- Tickets for entertainment such as sporting events or theater
- Meal money or qualifying expenses while working overtime
- Personal use of a cell phone provided by the employee for his or her business purposes
- Flowers, books, fruit, etc. are provided under special circumstances like the death of a family member, illness, or individual recognition.
Employees who want to gift the aforementioned items must ensure that the value is at or below $100, as the IRS has ruled that if any gift exceeds the value of $100, then the item will be taxed as a whole. In other words, any flower arrangements or gift items given as a form of sympathy or congratulations to employees or staff must be less than $100, or else the employee will be taxed for the whole value of the flowers or gift items.
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Is A Cell Phone For An Employee Considered Tax-Free?
Today, a lot of companies and business organizations give employees cell phones for making business phone calls. On meeting certain conditions, cell phones or reimbursed personal cell phones given to staff for business purposes can be utilized for making personal cons and will remain tax-free as a de minimis fringe benefit. The conditions required to make a cell phone tax-free with the de minimis benefits are as follows:
- Employees need to be in contact with colleagues beyond regular working hours.
- Employees need to be available at any time in times of work-associated emergencies.
- Employees must communicate with clients or customers in different time zones outside their regular office hours.
- Employees need to reach clients or customers while out of the office.
In order to get more information on your state, you can visit the IRS page on de minimis benefits benefits.
Why Are Gift Cards/ Vouchers Still A Good Option For Employee Programs?
In spite of the tax implications of offering vouchers or gift cards to employees, using the cards as an incentive program is an incredible way to reward the efforts of your staff and promote performance. The following are the reasons why gift cards are a good option for employee programs:
- Reliable: Gift cards or vouchers are easy to deliver and can be used anywhere in the world.
- Flexible: Gift cards can be used to create variety in your offers and programs.
- Digital: Gift cards let you send a welcoming gift without shipping, packaging, or other overhead considerations.
- Personalized: With so many options available, it is easy to create a personal connection with the recipient based on their needs and interests.
- Valuable: Vouchers or gift cards deliver great ROI for the company and create a positive experience for the recipient of the voucher. Even though they’re subject to federal tax, they can be a cost-efficient alternative to non-cash gifts.
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How Can I Report Gift Cards or Vouchers on My Taxes?
Any gift, apart from de minimis benefits like vouchers, gift cards or cash, that has not been grossed up, should be reflected on their employee W2 form in the United States of America. Such types of gifts fall under additional compensation that must be reported under the correct line of the W2 form. It is also important to note that failure to report the additional income may result in fines, penalties, or other strict IRS actions.
Moreover, if the employee is covered for Medicare and Social Security taxes, the value of the benefits is also subject to withholding for taxes in the same way regular wages are taxed. In a nutshell, gift cards or vouchers given to staff are regarded as taxable income and subject to federal income tax, Medicare tax, and Social Security tax. They are also subjected to state income tax forms.
For tax purposes, the amount of a voucher or gift card is generally included in the employee’s pay, and the employer is required to enter it as income on the W2 form for the employee. Gift cards or vouchers are taxed in two ways.
- Using percentage withholding taxes at a flat rate of 22%
- Adding the value of the gift card to the amount of regular salary and deducting taxes from the total.
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Conclusion
Giving gift cards or vouchers to staff is an amazing way to express your appreciation for their hard work and effort during the holiday season. While giving vouchers and gifts to employees or staff is a thoughtful gesture, it is important to ensure proper reporting to avoid IRS notices and penalties. The taxability of gift cards or vouchers must be assessed on a case-by-case basis. To sum up gift cards or vouchers given to staff, any amount counts as taxable income and should be reported. You need to report the cash value of the vouchers or gift cards as part of the employee’s wages on Form W2. Improper reporting of the vouchers may result in an IRS notice and penalty. The others provide guidelines on whether a de minimis benefit is taxable or not, and you can find them on the official website of IRS. Overall, they provide convenience and flexibility for both employees and employers.
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Frequently Asked Questions
Can The IRS Track Vouchers or Gift Cards?
Gift cards or vouchers for staff cannot be tracked by the Internal Revenue Service (IRS). When it comes to the IRS and providing vouchers or gifts, reporting the cards or vouchers is done using the honor system. If you’re dishonest about the gift that you provide to the staff, the issue will arise in an audit.
How Much of a Gift Voucher Card Is Tax-Free?
No gift card or voucher is tax-free since it is not an actual gift but a purchase. As per IRS vouchers or gift cards given to staff or cash equivalent items, irrespective of the voucher card amount, the person who redeems the voucher or gift card is using your money to give themselves a present, which is why it is not tax-free.
What Are The Reporting Rules Of De Minimis Benefits Tax As Per IRS?
The minimum tax reporting rules specify that there is no need to report transactions below a specific value. The rules and guidelines may change from one year to another, so you need to consult a licensed and experienced tax professional in order to avoid any potential issues or penalties.
Why Should You Offer Gift Cards to Your Employees?
Providing gift cards to employees is an incredible way to thank them for their efforts or contributions towards the company. They bring value every day, and their efforts must be appreciated. Gift vouchers or employee incentives have amazing effects on their motivation and can reduce employee turnover. It is important to file taxes accordingly, as vouchers and gift cards have both financial and legal implications for businesses and employees.