What expense category is Gift Cards?

Employee gift cards are a great way to appreciate your employees and to boost morale. However, it's important to understand how to categorize and account for these expenses properly.

Gift Card Expense Category

Gift card expenses can fall under various categories, including:

• Employee Achievement Awards: If the gift card is given to an employee for length of service or safety achievement, it may be considered an employee achievement award.
• Bonuses: If the gift card is intended as additional pay for services performed, it may be considered a bonus.
• De Minimis Fringe Benefits: If the gift card is of nominal value and distributed to employees on holidays, it may be considered a de minimis fringe benefit.

Some Important Considerations While Classifying Gift Card Expenses

• Tangible Personal Property: Gift cards are generally not considered tangible personal property, which affects their treatment as achievement awards.
• Achievement Award Requirements: To qualify as an achievement award, the gift card must be given for length of service or safety achievement, awarded as part of a meaningful presentation, and under conditions that don't suggest disguised pay.
• Length-of-Service Award: A length-of-service award must be given after the employee's first 5 years of employment, and the employee cannot have received another length-of-service award (other than one of very small value) in the same year or the prior 4 years.
• Safety Achievement Award: An award for safety achievement will qualify unless it is given to certain types of employees (managers, etc.) or more than 10% of employees receive such awards in a year.
• Deduction Limits: There are deduction limits for employee achievement awards: $400 for awards that aren't qualified plan awards and $1,600 for all awards, whether or not qualified plan awards.
• Qualified Plan Award: A qualified plan award is one given as part of an established written plan or program that doesn't favor highly compensated employees.
• Reasonableness of Pay: Bonuses must be reasonable compensation for services performed.

Example of Gift Card Expenses

• Gift card given to an employee for 5 years of service.
• Gift card given to an employee as a holiday bonus.
• Gift card of nominal value given to employees on their birthday.

Some Tax Implications of Gift Card Expenses

Achievement Awards 

Achievement awards are deductible as a nonwage business expense, up to certain limits.

• A nonwage business expense is a cost incurred in the operation of a business that is not considered a wage expense.
• Wage expenses are payments to employees for their services.
• The deduction limit for employee achievement awards is $400 for awards that aren't qualified plan awards and $1,600 for all awards, whether or not qualified plan awards.

Bonuses 

Bonuses are generally deductible if they are intended as pay for services and the services were performed, and if reasonable.

• However, the total bonuses, salaries, and other pay must be reasonable for the services performed. 

Gifts of Nominal Value 

Gifts of nominal value are deductible as a nonwage business expense.

How Fyle Automates Expense Management

Fyle's AI-powered expense management software can help businesses accurately categorize and track their employee gift card expenses. Fyle's AI can ensure it is classified correctly as either an achievement award, bonus, or de minimis fringe benefit, ensuring accurate record-keeping and compliance with tax regulations. 

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