The IRS Says
Gift Cards are Taxable
Here's the proof that gift certificates and debit cards are TAXABLE as income.
Note the Recent CNN Story Below...
Colonial Life was audited and fined back taxes and penalties and interest on
Walmart Gift Cards they awarded . The IRS now takes the position these are
taxable as income. The original $30,000 budget that Colonial Life
invested became an administrative nightmare as the company was fined another
$60,000 in back interest, penalties, and fines.
It is in part due to this danger, that Toyota spends $1,000,000 on gift certificates
per year, and pays $920,000 in income taxes so the $1,000,000 will not have to
be taxed to the employees....can you believe $920,000 lost to taxes?
You Call This a Bonus?
Friday, December 12, 2003 Posted: 9:27 AM EST (1427 GMT)
cnn.com
TRAVERSE CITY, Michigan (AP)
Some bonus.
Hourly workers at Tower Automotive received $15 gift cards redeemable at
Meijer grocery-retail stores before Thanksgiving. Then the automotive supplier
decided the cards were "same as cash" gifts subject to federal and state income
taxes totaling 36.75 percent.
That means the "gift" will take $5.51 out of the workers' next paychecks.
"It's got a lot of people ticked off," said Donald McKee of Kingsley, a welding
technician. "This is the lowest they've gone yet to give us something and then
take it back."
United Auto Workers Local 5110, which represents about 300 hourly workers,
has filed a contract grievance over the matter. Some workers also have returned
the gift cards rather than pay the tax.
Pertinent Rules From the IRS Website Regarding Taxability of Gift Certificates...
http://www.irs.gov/individuals/page/0,,id%3D14787,00.html says...
Employee Compensation
If your employer gives you a turkey, ham, or other item of small or nominal value
at Christmas or other holidays, the value of the gift is not income. However, if
your employer gives you cash, a gift certificate, or similar item that you can
easily exchange for cash, the value of the gift is additional taxable salary or
wages regardless of the amount involved.
http://www.irs.gov/formspubs/page/0,,id%3D79377,00.html it says....
Achievement Awards
This exclusion applies to the value of any tangible personal property you give to
an employee as an award for either length of service or safety achievement. The
exclusion does not apply to awards of cash, cash equivalents, gift certificates, or
other intangible property such as vacations, meals, lodging, tickets to theater or
sporting events, stocks, bonds, and other securities. The award must meet the
requirements for employee achievement awards discussed in chapter 2 of
Publication 535, Business Expenses.
Proof that Walmart, Sears and Other Gift Certificates Are Taxable...
Alan J. Treeter, C.P.A.
PO Box 8273
Greenwood, SC 29646
864-223-9691
November 16, 1993
Mr. Bill Sims, Jr.
102 Lake Vista Dr.
Chapin, SC 29036
Dear Bill:
At your request I have performed a search for authority to the position that general Gift
Certificates given to employees are treated as cash gifts by the internal Revenue Service. A
general gift Certificate is one that is redeemable for unspecified merchandise. Under Internal
Revenue Code Section 274 the value of these Gift Certificates would be income to the employee,
subject to all employment related taxes, and would be deductible by the employer as
compensation. On the other hand, a program like the Buck Program, which awards a tangible
gift to employees' qualifies as tax free, subject to IRS guidelines.
I have included the following documents to support this position:
1. Internal Revenue Service Regulation Section 1.274-3
Also, I discussed this matter with Mr. Riddle of the IRS on November 10, 1993 who concurred
with my position. Mr. Riddle can be reached at 1-800-829-1040.
Again, gift Certificates for general merchandise are equivalent to cash and are not considered
tangible personal property.
Very truly yours,
Alan J. Treeter
Copies of the Tax Guide
Supporting This Position
1.274-3 Disallowance of deduction for gifts.
For purposes of paragraphs (b)(2)(iii) and (iv) of this section, the term "tangible personal property"
does not include cash or any gift certificate other than a nonnegotiable gift certificate conferring
only the right to receive tangible personal property. have previously been awarded by the employer
to more than 10 percent of the employees of the employer (excluding employees described in clause (ii)),
or (ii) such item is awarded to a manager, administrative clerical employee, or other professional
employees.
Service or safety achievement awards. Noncash awards for length of service or safety achievement
under a qualified plan are excluded from employees' wages and are exempt from FITW up to $1,600 if
the average cost of all such awards for the year does not exceed $400; for awards made under a
nonqualified plan, the exempt cost is limited to $400. A "qualified plan" is a permanent, written plan or
program that does not discriminate in favor of officers, shareholders, or highly compensated employees.
To be excluded from wages from under either kind of plan, the award must be given as part of a
meaningful presentation and under circumstances indicating that it is not a disguised form of
compensation. Awards must consist of tangible personal property; no cash, gift certificates, or
other cash equivalents are allowed.
NOTE* Length-of-service awards are not excludable from income from income if the
employee has been with the employer for less than five years or has received an award during the
current or preceding four years. Safety achievement awards can apply only to jobs involving substantial
safety risk; typical office jobs don't qualify.
Similarly except as otherwise provided in paragraph (d) of this section, a cash equivalent fringe
benefit (such as a fringe benefit provided to an employee through the use of a gift certificate or
charge or credit card) is generally not excludable.... For example, the provision of cash to an
employee for a theater ticket that would itself be excludable..... is not excludable. End of Document.
|
