Is gift card taxable to employee if employer is a non-profit and gift card is for non-profit's retail thrift store with merchandise received as donation to employer?

[billy-1920]

Is gift card taxable to employee if presented by employer as prize to select employees for winning a contest; is gift card taxable to employee if employer is a non-profit and gift card is for non-profit's retail stores of donated merchandise?

[Hal_Al]

Yes. 

See this IRS web site https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits, which says, in part:

"Cash or cash equivalent items provided by the employer are never excludable from income. An exception applies for occasional meal money or transportation fare to allow an employee to work beyond normal hours. Gift certificates that are redeemable for general merchandise or have a cash equivalent value are not de minimis benefits and are taxable.

A certificate that allows an employee to receive a specific item of personal property that is minimal in value, provided infrequently, and is administratively impractical to account for, may be excludable as a de minimis benefit, depending on facts and circumstances."

There is no exception for non profit employers. Although the the donated items have no wholesale cost to the employer, they still have a retail cash value.

From a practical standpoint it depends on why you are asking. If you are questioning your employer including the amount on your W-2, yes they can and should do that. If they did not do that and you are asking whether you should include it as income, the answer is yes you should; but "nobody does it".

Here's another article on the subject https://www.shrm.org/ResourcesAndTools/hr-topics/compensation/Pages/Holiday-Gifts-Taxable.aspx

[tipon0]

Hi @Hal_Al , thank you for this response! It helped clarify some questions I had.

If an employee of a public charity wants to make a donation back to that charity in the same year, can we just pay them less for that year? Apologies if the question seems a bit silly.

[Opus 17]

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@tipon0 wrote:

Hi @Hal_Al , thank you for this response! It helped clarify some questions I had.

If an employee of a public charity wants to make a donation back to that charity in the same year, can we just pay them less for that year? Apologies if the question seems a bit silly.

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If an employee is willing to take a lower salary to financially benefit the charity, that of course is allowable, provided you don't violate any state wage and hour laws.  (For example, you can't pay less than minimum wage, and you probably can't have the employee work for free for a day**.)

**This may be more complicated.  If the employee works paid hours Monday-Thursday, and "volunteers" for free on Fridays, this might be legal, but it also muddies the waters in a way that would be an unacceptable risk if I was managing the charity's finances.  If at some point in the future, the employee filed a state labor board complaint and alleged you "forced" them to work without wages, it would be very hard for you to prove otherwise.  If I was financial director for a charity, I would never allow my paid employees to also volunteer for free, unless I had a bulletproof legal opinion from my attorney.

However, a salary reduction is not a donation, and you can't issue a donation receipt.  The employee's "tax break" is that fact that, since they earned less wages, they pay less tax.  The employee can't deduct from their income, money that was never in their income in the first place.  And it would be improper (and illegal) for you to issue a donation receipt under those circumstances.  You and the employee simply agree that the employee will be paid a smaller salary.