This time of the year is a popular time to give gift cards to your employees as a way of showing appreciation, but you need to be sure it is reported as wages, and they pay tax on the value. Whether it is a $5 Starbucks card to a $50 gift card at a brand store, or even just a Visa gift card for $X amount, you need to include the full value of the gift in the employee’s taxable wages.
The IRS considers gift cards as a cash equivalent, no matter what the value, and it does not fall under their definition of a ‘De Minimis Fringe Benefit’. These fringe benefits can be excluded from income, and can include such items as; employee’s occasional use of a copier, occasional snacks/coffee/donuts, occasional tickets to entertainment events, gifts, and the personal user of a cell phone used primarily for business. Keep in mind that frequency and value both come into play even with the above items, which is why I use the term ‘occasional’. For example, if Breakfast is provided every morning to the employees, or they are given season tickets to a sports team every year, then that too may be a taxable benefit.
Fringe benefits can become confusing, so the IRS has issued Publication 5137.