Tax treatment of employee rewards varies widely — by company, state, and reward type. HiThrive can't provide tax advice, but this article outlines how other customers approach the question, what the IRS generally says, and how to use HiThrive's tools to stay on top of reporting.
How customers handle it
There's no single right answer. Here are the most common approaches we see:
Treat all gift cards as taxable income — report and withhold accordingly
Set a threshold — treat rewards as non-taxable up to a certain annual amount per employee (e.g. $1,000/year), then report anything above it
Treat non-cash rewards as non-taxable — relying on the de minimis fringe benefit exclusion for low-value, infrequent items
Limit available catalogs — since each rewards catalog can be enabled or disabled independently, some organizations simply turn off catalogs that would create tax complexity
Whatever approach your organization takes, HiThrive makes it easy to pull a monthly or quarterly report of redeemed rewards per employee. That report can be passed directly to your finance or payroll team.
What the IRS says
Most gifts to employees are considered taxable income unless they qualify as de minimis fringe benefits. To qualify as non-taxable, a gift generally needs to meet all four of the following:
1. It's not cash. Cash gifts and bonuses are always taxable, regardless of amount.
2. It's not a gift card. Gift cards are treated like cash by the IRS — taxable at any value.
3. It has a low fair-market value. The IRS doesn't publish a precise threshold, but anything over $100 is clearly outside de minimis. Many legal experts draw the line at $75. Note: if a gift exceeds $100, the entire amount becomes taxable wages — not just the excess.
4. It's occasional or infrequent. Standard recognition moments like birthdays or work anniversaries typically satisfy this criterion.
Employee achievement awards (length-of-service and safety)
There's an important carve-out worth knowing about. For awards given specifically for length-of-service or safety achievements under a qualified plan, non-cash gifts up to $1,600 fair-market value per employee per year may be excluded from taxable income.
A few things to keep in mind:
Cash and gift cards are still not eligible for this exclusion
Awards above $400 trigger additional record-keeping requirements
The program must meet IRS criteria to qualify as a "qualified plan award" — review the IRS Fringe Benefit Guide for specifics
Configuring catalog notices in HiThrive
HiThrive allows admins to add a custom notice or disclaimer that appears as a pop-up when a team member opens a specific rewards catalog. This is a useful way to set expectations around tax treatment before a redemption is made.
Notices are configured per catalog, so you can tailor the message to the reward type. A few examples of how organizations use this:
Employee responsibility
"Gift cards and cash-equivalent rewards may be considered taxable income under IRS guidelines. Please consult your tax advisor regarding any personal tax obligations."
Employer withholds / payroll deduction
"Rewards redeemed from this catalog are treated as taxable income by [Organization Name] and will be reflected as such in your payroll. A corresponding deduction will be processed automatically."
Threshold-based notice
"Rewards redeemed from this catalog count toward your annual recognition total. Amounts exceeding $[X] per calendar year will be reported as taxable income."
To configure a catalog notice, go to Settings > Rewards > Catalogs, select the catalog you want to update, and enter your notice text in the Catalog Notice field. The message will appear as a confirmation pop-up before a team member proceeds with a redemption.
*Note: This article is for informational purposes only and does not constitute tax or legal advice. Tax laws vary by jurisdiction and company type. Consult a qualified tax professional to determine the appropriate treatment for your organization.