VCU Procurement Services

Gift Cards in the Workplace: A Thoughtful Gesture or a Taxable Headache?

Giving gifts has long been a meaningful way to express appreciation, especially in the workplace. Whether it’s a token of gratitude for a job well done or a gesture of goodwill during the holidays, gifts can boost morale and strengthen team culture. However, when it comes to gift cards, things get a bit more complicated—especially under the watchful eye of the IRS.

Gifts vs. Gift Cards: What’s the Difference?

The IRS distinguishes between de minimis fringe benefits and cash-equivalent compensation. A de minimis benefit is something so small in value and given so infrequently that it’s considered impractical to account for. Examples might include:

• Holiday turkeys or hams
• Occasional flowers or snacks
• Tickets to a local event (in some cases)
• Modest birthday or bereavement gifts

These types of gifts are generally not taxable and don’t need to be reported.

However, gift cards and gift certificates are not considered de minimis—no matter how small the amount. The IRS treats them as cash-equivalent compensation, which means they are:

• Taxable
• Reportable on an employee’s W-2
• Subject to income tax, Social Security, and Medicare withholding

VCU policy prohibits the use of gift cards for employee compensation under any circumstances, including:

• Research participation
• Recognition or incentive programs
• Department thank-you gestures

Instead, compensation must go through Payroll using approved methods like the Spot Award program. This ensures compliance with both IRS regulations and university policy.

What About Non-Employees?

Gift cards may be used for non-employee research participants, but with strict conditions:

• Names and Social Security Numbers may be required
• Cumulative payments must be tracked
• Documentation must be maintained
• Approvals from Procurement or Sponsored Programs may be necessary

If the participant is also a VCU employee, gift cards are not allowed—even if they’re participating in a study.

Best Practices for Gift Giving

To stay compliant and avoid penalties:

• Avoid gift cards unless explicitly approved
• Document everything—recipient, amount, and purpose
• Coordinate early with Payroll, HR, or Sponsored Programs
• Don’t assume small amounts are exempt—cash is cash

Alternatives to Gift Cards

Looking for ways to show appreciation without triggering tax issues? Consider:

• Meal credits through Dining Services
• Branded merchandise
• Extra time off (if policy allows)
• Public recognition or certificates

Need Help?

Before purchasing or distributing any gift cards, consult:

• VCU Procurement for policy guidance
• Financial Services/Tax Compliance for IRS implications
• Sponsored Programs for research-related compensation

Categories Procurement Services