Though we can't give any tax advice, we can offer a few examples of how some companies who use HiThrive have approached the question and some helpful resources so that you can make the appropriate determination.
Some of our customers treat gift cards as taxable income (to the employee). Others do not. Still others treat gift cards as non-taxable as long as the total amount earned is below a certain amount per year (e.g. not taxable as long as total gift cards earned are less than, say, $1000/year). Finally, you can turn on / off any of our rewards catalogs independently, which sometimes helps as well!
Regardless of what tax treatment you decide, it is easy to download a monthly or quarterly report of your employee's redeemed rewards from HiThrive. The report can be sent to your finance department to use for compliance with any applicable tax laws.
According to the IRS, most fits to employees are considered taxable income, unless they meet the criteria for de minimus fringe benefits.
For gifts to be non-taxable, they must meet the following criteria:
1. It’s not cash.
Cash gifts and bonuses are almost always considered taxable income, no matter the amount.
2. It’s not a gift card.
Like cash, gift cards are taxable – no matter how small or large.
3. It has a low fair-market value.
The IRS keeps the exact amount vague, but clarifies that anything worth more than $100 cannot be considered de minimis. Some legal experts draw the line at $75. It’s important to note that if your gift exceeds $100 and is clearly taxable, the entire amount is treated as taxable wages, not just the amount in excess of $100.
4. It’s occasional or infrequent.
Typical gifts to employees, like birthdays or work anniversaries, meet this criterion. This rule is to prevent abuse, like employers constantly gifting employees as a disguised form of compensation.
*Employee achievement awards
It is important to be aware that there is a specific carve-out for employee achievement awards given for length-of-service or safety.
While you are still unable to give employees cash or cash-equivalent gift cards without tax implications, you can give much more valuable non-cash gifts (up to $1,600 fair-market-value in gifts per employee per year) without tax obligations. To learn about the IRS requirements, please view the Fringe Benefit Guide here.
Technically, gifts given under such programs (called “qualified plan awards”) can go as high as $1,600 per employee per year before they become taxable income. However, you may want to keep gifts under $400 to avoid record-keeping and tracking required for determining the taxability of awards.