Q. I gave all my employees gift cards this year as a holiday present. Is that taxable? A. Yes! This is a never-ending debate in the payroll departments of America. The debate heats up each year at holiday time. The gift card was given to your employees. This means the gift is based on the employer/employee relationship. Each card has value and is essentially cash to a store of some kind. Whenever cash is exchanged, it is a taxable transaction to an employee. The argument is always that gift cards or cash under $50 in value are “de minimus” or too small to account for. However, there is no such limit that has ever been published by the IRS. To keep from being a “scrooge”, employers will often “gross up” the value of the cards and pay the taxes for the employees instead of taking the taxes from the gift card. For instance, a $40 card in South Carolina, will be grossed up using the federal supplemental rate of 25% and the state supplemental rate of 7% plus Social Security/Medicare taxes of 7.65%. So the total income hit would be $40/(1-.3965) or $66.28. On the other hand, a gift to an employee of a turkey or a pen/pencil set engraved with their name would not be taxable simply because it is not exchangeable for cash and is of very low value. If you gave all of your employees a 42 inch LCD tv valued at $1000, then you would obviously not be dealing with de minimus. The value of the tv would need to be added to the employees’ W-2s as well. The point at which the property gift becomes taxable is very thin and very fuzzy. Check with your legal team or tax advisor to see where this hits in your situation. The line with gift cards though is very black and white. Yes they are taxable income to the employee!