Are there any tax issues we need to be aware of when we give employees a gift card or other small gift?

Yes. In the past, employers could give employees cash or a cash equivalent gift such as a gift certificate for amounts less than $25 without any tax concern. These were known as de minimis fringe benefits or gifts.

That is no longer the case. The Internal Revenue Service (IRS) tells employers that all cash gifts, including gift cards, are considered taxable wages unless specifically excluded by a section of the Internal Revenue Code (IRC).

Employers may still provide quite a few perks to employees that may be considered de minimis and not taxable to the employee. These include tickets to the theater or sporting events; traditional birthday gifts or holiday gifts with a low fair market value (not cash or cash equivalent); flowers; and occasional break treats such as coffee, doughnuts, soft drinks and the like.

For example, the employer is allowed to give employees a small gift on the employee's birthday or a holiday turkey or ham without any taxable issues to the employee. However, if the employer gives the employee a gift certificate to purchase the item that could instead be used for general merchandise, the amount of the gift certificate would be treated as taxable income to the employee.

For further guidance, see De Minimis Fringe Benefits.