The Tax Implications of Giving or Receiving Gift Cards

You just gave an employee a gift card to celebrate their performance. It feels generous, simple, and hassle-free—until someone asks, “Wait…are gift cards taxable?” Suddenly, what seemed straightforward becomes a maze of IRS rules, state laws, and raised eyebrows.

Whether you’re an employer rewarding your team, a shopper buying a last-minute present, or an employee wondering if that holiday bonus card will impact your pay check, the tax implications of gift cards matter.

Are gift cards taxable to employees? What about de minimis fringe benefits, do small-value cards slip under the radar? And when does a gift card become taxable income?

But here’s the catch: Gift cards might be easy to give to employees, but the IRS rarely calls them “just a nice gesture.”

Questions like “Do I owe sales tax on this card?” or “Wait, is buying a gift card taxable?” turn a simple gift into a head-scratcher—especially if you’re a small business owner crunching numbers or a shopper juggling state tax fine print.

In this guide, we’ll untangle the confusion. You’ll learn how to stay compliant without overcomplicating things—because nobody wants a tax surprise hiding in their stocking (or their spreadsheet). Let’s dive in.

Are Gift Cards Taxable to Employees

Picture this: Your boss hands you a $100-gift card for crushing a project. Feels great, right? But there’s the catch—that card could raise your tax bill.

Why? Are gift cards taxable to employees? In most cases, yes.

The IRS views them as cash equivalents, meaning they’re treated like a bonus or an extra pay check.

Translation: That $100 card isn’t just a pat on the back—it’s taxable income subject to federal withholdings, Social Security, and Medicare.

But wait—what about small amounts, like a $10-coffee card for the holidays? Doesn’t the “I’m not sweating the small stuff” rule?

Technically, yes, de minimis fringe benefits (think office pizza parties or holiday turkeys) are tax-free. But here’s the kicker: The IRS explicitly excludes gift cards from this perk, even if they’re low-value.

Why? They’re seen as “disguised cash.” A branded mug? Probably safe. A $5 Starbucks gift card? Reportable.

Need ideas for tax-free perks that feel like perks? Skip the gift card drama and try these IRS-friendly alternatives:

• The occasional “I need to print my kid’s homework” office copier use. (Yes, personal prints are fine—just don’t start a side hustle.)

• Coffee runs, donut Fridays, or a soda stash in the breakroom. Because nobody taxes your caffeine fix.

• “Hey, take an Uber home after working late” or “Here’s $20 for pizza on overtime nights.” Small, occasional help? Tax-free.

• Tickets to a baseball game or local theater show. Shared fun > taxable income.

• Holiday turkey or ham. Classic, delicious, and 100% tax-free (the IRS loves tradition).

• Flowers after a rough week or a book for crushing a project. Thoughtful and untaxed.

• Using the work phone for personal calls? As long as it’s occasional, the IRS gives it a thumbs-up.

What Are De Minimis Benefits?

Imagine your boss surprises the team with Friday pizza or a holiday ham.

That’s the spirit of de minimis benefits small, infrequent perks so trivial the IRS doesn’t bother taxing them.

Think free coffee in the breakroom, occasional flowers for a work anniversary, or even a company-branded water bottle.

The rule of thumb? If it’s impractical to track and low-value (usually under $100), it’s tax-free.

But here’s where gift cards crash the party: The IRS draws a hard line.

Even a $5 coffee card is treated as “cash-like,” stripping it of that de minimis fringe benefit magic.

Why? Unlike pizza or swag, gift cards are too flexible—they’re essentially pocket money.

So, while a holiday turkey is a tax-free treat, slipping a gift card into someone’s stocking? That’s taxable, no matter how small.

For employers: Stick to non-cash goodies for truly tax-free perks. For employees? Enjoy the pizza guilt-free, just don’t assume that gift card is flying under the IRS radar.

Are Gift Cards Classified as Taxable Income?

If you’ve ever gotten a gift card from your employer, say, a $200 Visa gift card for hitting a goal or a holiday Amazon bonus—chances are, the IRS considers it taxable income.

Why? Because gift cards act like cash. You can swap them for groceries, gadgets, or a weekend getaway, which means Uncle Sam wants his share.

This applies whether you’re an employee, contractor, or even a volunteer. For example:

• A $50 gift card to employees for a job well done? Taxable via payroll.

• A thank-you card to a freelancer? Reportable on their 1099 form.

• A “free coffee on us” card to a volunteer? Tax-free if under $600/year—but cross that threshold, and it’s income.

The de minimis fringe benefits rule won’t save you here. Unlike holiday turkeys or team lunches, gift cards are treated as “disguised wages,” even tiny ones.

So, while your company hoodie is tax-free swag, that gift card? It’s a taxable thank-you.

Are Gift Cards Sales Taxable?

Let’s say you buy a $50 gift card for a baby shower. At checkout, you notice no sales tax added. Score! But fast-forward to when she uses it—sales tax pops up on her purchase.

Confused? You’re not alone. Are gift cards sales taxable? Here’s the deal:

As per the gift card laws of California or Texas, you don’t pay sales tax when buying a gift card. The tax kicks in later, when the card is redeemed for actual goods.

For example, buying a $100 Best Buy card? Tax-free. Using it to buy a taxable item like a laptop? That’s when sales tax applies.

This sales tax may vary from state to state within the US and other countries around the world. 

So, make sure you check the law regarding taxes in the country that you live in to stay aware of any surprises that may come your way.

Pro Tip for Shoppers: Check your state’s rules! And for businesses? If you sell gift cards, clarify your tax policy upfront to avoid customer confusion (or frustration at the register).

Are Gift Cards Taxable When Purchased?

You’re at the store, grabbing a $50 gift card for your coworker’s farewell gift. At checkout, you wonder: “Wait—am I paying sales tax on this card right now?”

Are gift cards taxable when purchased? Here’s the good news: In most states, no. Buying a gift card is like buying a promise—it’s not taxed until it’s redeemed for actual goods.

For example, snagging a $100 Home Depot card in Florida? Tax-free. Using it later to buy a taxable item like paint? That’s when sales tax hits.

But (there’s always a but), a handful of states like Pennsylvania and Rhode Island tax gift cards at the register. So if you’re in Pittsburgh buying a $25 Starbucks gift card, you’ll pay sales tax upfront—no exceptions.

For businesses: Purchasing gift cards in bulk for employee rewards? The cost is usually deductible as a business expense, but keep receipts and document their purpose.

International Considerations (outside the US)

So, you’re a U.S.-based company sending an international gift card to a remote worker in Canada, or maybe you’re a traveler wondering if that souvenir gift card from Paris is taxable. Are gift cards taxable outside the U.S.? The answer? It’s a global mixed bag.

• Canada: Gift cards to employees? Yep, they’re treated as taxable income (just like in the U.S.). When redeemed, sales tax (like HST) applies to purchases. Pro tip: A Tim Hortons gift card for your Toronto team? Taxable, but a branded toque? Probably not.

• European Union: Rules swing by country. In Germany, VAT is charged when the card is purchased. In the UK, VAT applies at redemption. Confused? You’re not alone—this keeps accountants busy.

• Australia: If you’re giving employees a gift card under $300 AUD infrequently, it’s tax-free. But make it a habit? The taxman comes knocking.

The takeaway: Always ask, “Are gift cards taxable here?” before shipping them globally. When in doubt, partner with a local tax expert—because nobody wants a surprise bill from a foreign revenue agency.

Wrapping It Up

Gift cards are the Swiss Army knife of gifting—versatile, convenient, and sometimes way trickier than they seem. Whether you’re handing out rewards to employees, stocking up on client thank-yous, or just trying to avoid a tax-time headache, here’s the bottom line:

For Employees: That “free” gift card? It’s likely taxable income. Whether it’s a $10 coffee card or a $500 holiday bonus, the IRS sees it as cash.

For Businesses: Track every card you distribute. Even small amounts add up, and de minimis fringe benefits won’t bail you out here.

For Shoppers: Are gift cards sales taxable? Usually not at purchase—but check your state’s rules. Sales tax hits when the card is used, not bought (unless you’re in Pennsylvania, sigh).

Globally: When sending cards abroad, ask, “Are gift cards taxable here?” Rules vary wildly—Canada taxes them, Germany charges VAT upfront, and Australia lets small infrequent gifts slide.

Remember: Gift cards are more than just plastic—they’re mini tax puzzles. Stay proactive, document everything, and when in doubt, call a pro. Because nobody wants a “happy holiday” turning into an April 15th nightmare.