The data is on your side when it comes to offering gift cards as an employee reward or incentive. In fact, gift cards have been at the top of wish lists for 13 years in a row, according to the National Retail Federation. Simply put, your employees like having a choice when it comes to spending their hard-earned rewards. That desire—paired with the fact that Tango Card simplifies the reward sending and tracking process—makes gift cards a win-win solution for businesses. But uncertainty over gift card taxes can raise concern for some professionals.
Discussing gift card taxes with your colleagues and leadership team doesn’t have to be difficult. Becky Hathaway, Tango Card’s Director of Employee Experience, has a variety of tips for approaching the topic of gift card taxes—from gaining leadership buy-in to using payroll systems to their full advantage. Here’s a look at her perspective as an HR professional.
Put Gift Card Taxes in Perspective
“Many businesses offer employees branded merchandise—like backpacks and sweatshirts—as rewards. But even something as simple as a t-shirt can come with unexpected costs,” Becky explains. “By the time you’ve paid the added fee to have your logo printed on the shirts, covered the cost of shipping, and paid the additional fee to send the shirts to multiple addresses, these seemingly simple items have increased your budget by at least 6%.”
Keep in mind, this number doesn’t factor in the time your marketing team spent creating and approving the branded t-shirt design or the time your HR team spent pulling spreadsheets, updating employee addresses, and creating reports. When you compare the total cost of branded merchandise to the cost of gift cards—taxes included—the amount is often comparable. However, with gift cards you spend far less time coordinating logistics and more time offering rewards that your employees actually want.
Consider Your Approach to Paying Gift Card Taxes
Here at Tango Card, we reward employees with gift cards to boost morale, celebrate milestones, and encourage engagement. To ensure employees can use their full gift-card balance, we pay the taxes. “To achieve this, we do a gross-up, which means we add the value of the gift card—plus additional taxes—to the employee’s paycheck,” Becky explains. “Though the amount appears on the employee’s check, it’s not paid to the employee, resulting in a zero-sum impact.”
Becky’s team pulls reports on a quarterly basis from Tango Card’s Rewards Genius product, a free web portal for managing reward and incentive programs. These reports provide the names of employees who received gift cards, dates on which gift cards were sent, and gift card amounts. With this report, the HR team creates a sum that includes the gift card amounts. From there, they do a gross-up.
Rely on Your Payroll System
To help simplify the process of paying gift card taxes, Becky’s team uses the gross-up calculator included in Tango Card’s payroll system, Namely. Calculators like this allow HR professionals to easily enter gift card amounts. Once entered, it calculates the additional tax obligation. These calculators are included in many payroll systems, including ADP and SentricHR.
Our team is available to answer general questions about our reward solutions, but for specific tax questions that apply to your company or rewards program, we encourage you to consult your tax advisor.
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