Q: I want to give my employees $25 gift cards to thank them for their help on a project. Is this acceptable? Is there anything I need to know before doing so?
A: Giving out gift cards is a great way to show your appreciation. Feel confident in making this gesture in a compliant way, by keeping in mind that the value of the gift cards would have to be reported as wages.
The IRS has a provision that allows for non-taxable "De Minimis" gifts. This allows an employer to buy an employee flowers to celebrate an achievement, occasional sporting event tickets, morning donuts, lunch, etc. without having to include it in the employee's taxable wages.
However, the IRS requires that all cash and cash-equivalent benefits be included in regular wages, regardless of size. And they consider gift cards to be "cash-equivalents." Therefore, the value of any gift cards, regardless of how small, has to be reported as wages to the employee.
You should also consider whether this gift card should be treated as a discretionary or a non discretionary bonus. In most cases where each individual is given the same amount solely at the employer’s discretion, a gift card will be considered discretionary. If, however, you tie the receipt of the gift card to a certain level of performance, it may be considered a non-discretionary bonus. In that case, it would need to be included in the regular rate of pay before making any overtime calculations.