In 2017 the
top 1 percent of taxpayers paid a 27.1 percent individual Federal income tax rate,
which is more than six times higher than taxpayers in the bottom 50 percent
(3.6 percent). Many on the bottom 50% paid no income tax.
The vast majority of the rank and file employees in business today are, on average, in the bottom 50%. If they pay any Federal income taxes at all in all likelihood it will be less than 10%, probably closer to the 3.6%.
Without getting into the weeds on the rules for taxation of employee awards, $400 of awards you give to your employees for years of service is not taxable, but only if it's merchandise, or tangible personal property. Gift cards are taxable just like you are giving them cash.
Without getting into the weeds on the rules for taxation of employee awards, $400 of awards you give to your employees for years of service is not taxable, but only if it's merchandise, or tangible personal property. Gift cards are taxable just like you are giving them cash.
Not a week goes by that I don't discuss using gift cards for years of service programs, and not a week goes by that I don't have a client say they can't because the merchandise is not taxable, but gift cards are. And that's true, and it's also true that you will spend $400 for the merchandise award (and more if shipping and taxes are not included) as well as $400 for the gift card net. So your budget is the same. And frankly there are many clients who don't want to rock the boats of their tax department to try to use gift cards, even if they are a much better value for their employees.
This simplistic comparison certainly assumes that the merchandise you pay $400 for has the same value as the $400 you spend on the gift card. They're both $400...Right? But this comparison without a doubt also assumes they are the same real value to the employee. That is certainly and completely not true!
For decades, years of service award companies have been using the ploy of “their awards are not taxable” to load their selections with such high priced merchandise that actual comparisons show are almost always priced higher than retail…sometimes as much as double retail. For those suppliers the "it's not taxable ploy" is a license to steal. Is using taxation as the reason to not give your employees the best value the right thing for them? Shouldn't this be what it's all about, recognizing them for their performance over the years with something meaningful? Is giving them a $400 item that they see online for $250 meaningful to them?
Don't Kid Yourself...Your Employees Know the Truth
In the age of online shopping where comparing merchandise is a way of life, determining the value of these awards is easy. We all shop that way every day, and we're always looking for the best value. When the employee learns that you paid $400 for the item, rest assured they will go online to find out what it's really worth. That’s the main reason many employees ask for gift cards in the first place.
So How to Use Gift Cards
We have many clients who use gift cards for years of service programs. They are much simpler to use, all of our gift card systems are suitable for these programs. Some clients decide to pay for the taxes themselves, but many others just add the amount of the gift cards they give to the employees W-2 at the end of the year, and the employee is subject to the tax on that $400. But as mentioned about, many aren't even paying Federal Income Tax and if they are it is usually less than 10% and more likely below 4%. Using our $400 as an example, it the merchandise item shows a real value through comparison of only $250 online, what do you think the employee would prefer? Getting a $400 gift card, paying the $12-$40 in taxes, purchasing the $250 item online and the having $100+remaining would be our bet.
That would seem to be a easy decision to us.
And by the way, in the last research completed by the incentive industry, shows the usage of gift cards in years of service programs is approaching 50%. Now we know why!
Finally most clients don't have the time to do the comparisons necessary to make an informed decision on using gift cards. But we do, we have done many of them, and will gladly do one for you if you'd like. Just let us know. It won't cost your budget any more, but it will guarantee that the majority of that budget gets into the hands of your employees, not those high priced merchandise suppliers.
This simplistic comparison certainly assumes that the merchandise you pay $400 for has the same value as the $400 you spend on the gift card. They're both $400...Right? But this comparison without a doubt also assumes they are the same real value to the employee. That is certainly and completely not true!
For decades, years of service award companies have been using the ploy of “their awards are not taxable” to load their selections with such high priced merchandise that actual comparisons show are almost always priced higher than retail…sometimes as much as double retail. For those suppliers the "it's not taxable ploy" is a license to steal. Is using taxation as the reason to not give your employees the best value the right thing for them? Shouldn't this be what it's all about, recognizing them for their performance over the years with something meaningful? Is giving them a $400 item that they see online for $250 meaningful to them?
Don't Kid Yourself...Your Employees Know the Truth
In the age of online shopping where comparing merchandise is a way of life, determining the value of these awards is easy. We all shop that way every day, and we're always looking for the best value. When the employee learns that you paid $400 for the item, rest assured they will go online to find out what it's really worth. That’s the main reason many employees ask for gift cards in the first place.
So How to Use Gift Cards
We have many clients who use gift cards for years of service programs. They are much simpler to use, all of our gift card systems are suitable for these programs. Some clients decide to pay for the taxes themselves, but many others just add the amount of the gift cards they give to the employees W-2 at the end of the year, and the employee is subject to the tax on that $400. But as mentioned about, many aren't even paying Federal Income Tax and if they are it is usually less than 10% and more likely below 4%. Using our $400 as an example, it the merchandise item shows a real value through comparison of only $250 online, what do you think the employee would prefer? Getting a $400 gift card, paying the $12-$40 in taxes, purchasing the $250 item online and the having $100+remaining would be our bet.
That would seem to be a easy decision to us.
And by the way, in the last research completed by the incentive industry, shows the usage of gift cards in years of service programs is approaching 50%. Now we know why!
Finally most clients don't have the time to do the comparisons necessary to make an informed decision on using gift cards. But we do, we have done many of them, and will gladly do one for you if you'd like. Just let us know. It won't cost your budget any more, but it will guarantee that the majority of that budget gets into the hands of your employees, not those high priced merchandise suppliers.
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