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Are Gift Cards Tax Exempt?

April 21, 2011 by  

I’ve been asked the following question many times; are gift cards tax exempt?  I figured I’d do a little research and see what I might find.

There are certain gift cards that fall under the IRS code for tax exempt treatment. As long as the gift card can not be used for cash, paying bills, etc., and are part of a defined benefit plan for gift selections, such as, an award program, they are non-taxable. The code states: according to Prop Regs 1.274-8, the exemption for employee acheivement award applied to “tangible personal property” that is transferred to an employee by reason of the employee’s length of service of safety achievement. Also, the exemption is limited to $400 or $1600 depending on the qualification of the award plan.

“Tangible personal property” does not include cash or a certificate (other than a nonnegotiable certificate conferring only the right to receive tangible personal property). If the certificate entitles an employee to receive a reduction of the balance due on his account with the issuer of the certificate, the certificate is a negotiable certificate and is not tangible personal property for purposes of this section. Other items that will not be considered to be items of tangible personal property include vacations, meals, lodging, tickets to theater or sporting events, and stocks, bonds, and other securities.

Also, the employee awards must not be disguised compensation.

Therefore, if the certificates or VISA cards are nonnegotiable certificates to receive tangible personal property, subject to the dollar limitations, no taxable wages to the employee exits.

I do not want to take a position on whether a VISA card is taxable or not, it is still best to consult with your own tax advisors, but this is what research I found.

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