The Top FAQs on Employee Rewards, Gift Cards, and Taxes

  • author

    Hannah Prince

  • posted

    Sep 19, 2023

  • topic

    Employee Rewards

The Top FAQs on Employee Rewards, Gift Cards, and Taxes

For most companies, setting up an employee rewards program and deciding how it will operate isn’t a one-person job. There are a number of departments involved, from the executives who need to buy in to the managers who will be handing out the rewards.

It likely won’t take much to convince most of these stakeholders that gift cards and prepaid cards are the ideal option for employee rewards. They are, after all, more popular than ever and endlessly adaptable for every season and need.

The toughest people to get on board might be your colleagues in the accounting or finance department. To them, gift cards may seem more complicated than other options for employee rewards. Here are some FAQs to arm you with the information you need to argue your case.

Are Gift Cards or Prepaid Cards Taxable When Given as Employee Rewards?

In short, yes. Because these kinds of rewards have a clear cash equivalent value, they are considered taxable income, just as a cash bonus would be.

Don’t They Fall Under De Minimis Fringe Benefits?

The IRS’ definition of a de minimus benefit is “one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.” That does include certain rewards and perks, such as occasional snacks or coffee, tickets to entertainment events, or low-value holiday gifts. But it does not cover “gift certificates that are redeemable for general merchandise or have a cash equivalent value.”

So Why Don’t We Just Host Team Dinners and Give Out Swag Instead of Offering Gift Cards?

There are a number of reasons that it’s worth a little extra accounting effort to give gift cards and prepaid cards instead of other, more traditional types of employee rewards. First and foremost, those options aren’t what employees want, and therefore will be less effective in improving engagement, morale, and retention. In our latest Employee Incentives Report from NAPCO Research, 90% of respondents cited gift cards and prepaid cards as their preferred reward, compared with 40% for meals and social events and only 34% for apparel.

There are also advantages for the managers and human resources teams who are distributing employee rewards. Gift cards can be delivered instantly via email or text message, which is especially important for companies with remote, hybrid, and/or international workers. In those situations, in-office perks wouldn’t benefit all team members equally, while physical gifts would have to be packed up and shipped, adding administrative burden and cost. 

What About Cash Bonuses?

Gift cards are still preferred more by employees, beating bonuses by 18 percentage points in our Employee Incentives Report. Plus, a bonus is typically added to the employee’s regular paycheck, which could mean they don’t get it for at least a few weeks. And for more than half of employees, rewards have less impact when they take too long to receive, according to another BHN survey.

The flexibility of gift cards also gives them an advantage over cash bonuses. They can be more meaningful at smaller values (anyone ever get that useless $25 bonus on their paycheck?) and offer customization options to personalize the reward.

But My Accounting/Finance Team Said No to Giving Out Gift Cards. How Do I Get Them to Agree?

By providing them with detailed reporting, of course! Gift cards and prepaid cards give your accounting teams headaches only when they don’t have full visibility. Often, managers order gift cards straight from retailers like Amazon or Starbucks and send them to team members — without properly documenting and reporting them. But it doesn’t have to be that way anymore.

Instead, HR teams should implement a robust and central gift card platform that provides all the financial information needed in easy-to-pull reports. That way, managers can give out the employee rewards that their teams want, and the accounting department can have 100% visibility for tax reporting purposes.

For example, BHN Rewards gives users access to reports showing orders and payments, what rewards were sent, and the reward income for every recipient. And with user permissions, your accounting colleagues can be designated as viewers so they can pull the reports themselves in the platform.

Even better, a tool like BHN Rewards is designed for multiple teams, allowing for even more granularity. Set up completely separate workspaces and budget groups for different teams or departments, so reports can be filtered for each one.

Your accounting and finance teams will be on your side in no time once they understand the advantages of using gift cards and prepaid cards as employee rewards and how easy tracking  them can be.

Want to see BHN Rewards’ robust reporting capabilities in action? Request a demo today!

about the author
Hannah Prince

Hannah is a reformed journalist who has more than 15 years of experience and now focuses on content marketing for innovative tech companies.

Hannah is a reformed journalist who has more than 15 years of experience and now focuses on content marketing for innovative tech companies.