What expense category is a gift card to employees?

Employee gift cards are a great way to show appreciation and boost morale. But when it comes to accounting, you might wonder where they fit in your expense categories.

Classifying employee gift card expenses

Classifying employee gift card expenses can be a bit tricky because it depends on the purpose of the gift, the tax regulations, and your company’s internal accounting policies. However, here are the key ways to classify these expenses:

• Employee benefits: Gift cards can be seen as additional benefits beyond regular wages.
• Bonuses or incentive programs: If the gift card rewards outstanding performance, it may fall under bonuses.
• Employee recognition or staff gifts: For gifts given during holidays or as a gesture of appreciation.

Examples of employee gift card expenses

To help you better understand these expenses, here are some examples: 

• A $50 gift card given to an employee as a holiday gift.
• Gift cards awarded to employees who exceed sales targets.
• Gift cards given during staff appreciation events.
• Providing gift cards as part of an employee wellness program.

In a real-life scenario, your business might purchase ten $25 gift cards for a total of $250 to distribute to team members during Employee Appreciation Day, and your accounting team would record them as employee recognition or staff gifts.

Tax implications of employee gift card expenses

Understanding the tax implications is crucial when giving gift cards to employees. Key considerations include:

• Taxable income: The IRS treats gift cards as cash equivalents, so the full value is taxable income for the employee.
• Withholding requirements: Employers must include the gift card value in wages, subject to federal income tax withholding, Social Security, and Medicare taxes.
• Reporting: The value should be reported on the employee's Form W-2.
• Business deductions: Employers can generally deduct the cost of gift cards as a business expense but should keep proper documentation.

Properly handling these tax aspects ensures compliance and avoids potential penalties.

Let Ramp automate your expense process

Managing employee gift card expenses can be time-consuming. Ramp simplifies this process by automating expense categorization, tracking, and management. With Ramp, you can easily monitor spending, maintain accurate records, and ensure compliance—all while focusing on appreciating your team.