There’s an old saying that goes, “no good deed goes unpunished.” And when it comes to rewarding employees with a holiday or other work anniversary reward, the last thing businesses need is to have their generosity become a tax headache.
Other than small things like a pen or providing staff with free coffee, anything given to employees that has a clear cash value attached to it is considered taxable by the IRS, said Nat Salvione, chief commercial officer of Tango Card. However, he added, the tax implications should not exceed the cost and purpose of the present.
“We believe that anything meaningful or impactful that an employer is going to give to an employee will need to be tracked, and there will be tax implications,” Salvione said in a chat with PYMNTS. “The secret for a company is when they’re buying the gift cards for their employees to buy from a source that is able to track and report on the purchases so that the company has a full record of how much they spent, who they gave it to, and what the reasons for the recognition or incentive were.”
In the case of Tango, which manages employees reward programs like this, the point is to provide employers with a full reconciliation of their purchases at the end of the year.
The Wild West
Whether it’s a small mom-and-pop operation, or a giant, million-dollar annual spend from a large multinational corporation, the tax consideration and concerns are real, and they’re often misunderstood.
“We’ve talked to a number of companies that brought it up,” Salvione said. “One accounts payable person even told us that they viewed gift cards as the Wild West of their taxing obligation.”
While that might be an extreme depiction of the actual tax considerations, Salvione pointed to the problems that can arise when a manager simply goes out and buys gifts with a corporate card.
“So, a manager who wants to thank his or her team really quickly can just use their corporate card and buy some gift cards and have a little celebration,” he said, but that will also “cause the finance team to have to track and chase all that or turn a blind eye.”
Hence the Tango proposition that companies should centralize their purchasing through a gift card partner that can provide them all of the tracking they need.
Awesome … My Fourth Water Bottle
Bigger than taxes, Salvione said, is the challenge of finding the right gift. And if companies are going to spend time and money to thank their staff, they ought to make it count and not waste it. The best way to meet employee expectations while also satisfying employer administrative needs as to issue gift cards.
“There is a really good feeling when you just nail the gift and it’s perfect, but that’s like one in 10 times,” he said. “What we’ve seen is that employees really honor the ability to choose for themselves.”
And if you’re going to recognize work, it’s best to give something that really resonates with the employee, rather than “another water bottle” to add to their collection.
“This is a universal problem of gift giving,” he said. “What may have been a really great gift at a previous time, just doesn’t match now.”
Whether it’s parking closer to the door for a month or something free from the company store, Salvione said those things all sound really good to the management executive team, but the employees really want something that recognizes their differences and their value that they can actually use, share with their family, or even re-gift. While some corporate gift-buying services use artificial intelligence (AI) to sift through things like emails and social media to home in on the perfect gift, Salvione said personal choice is always preferred.
Shortcuts and Backfires
While some employers might want to get around the tax laws by issuing coupons or promotional discounts instead, things like expiration dates can backfire and quickly turn a good thing into a disaster or worse.
“This just undermines the whole intention of the gift,” he said.
He cited the National Retail Federation, which found gift cards have been a top gift for over a decade.
“If the company values an employee and they feel like they deserve an incentive or a recognition,” he said, “they should really factor in the budget and give them something really meaningful.”