Gift Card to employees

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christybeth
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Joined: Tue Feb 09, 2016 12:35 pm
Location: Washington State
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Gift Card to employees

Post by christybeth »

A gift card was purchased for two of our employees for a facial or massage and I am trying to figure out how to include it in payroll as I understand it is considered taxable income as a gift card. This had been done once before and I had to consulted a CPA for correction of our 941's but hoping to avoid it this time around and to account for it properly. I have asked the staff not to give employees gift cards as this complicates things but they forgot. :wall:

Can I add a Pay Item with the type as Taxable Benefit and a description of "Gift Card" and set it up as taxable for Federal Withholding, Medicare, Social Security and WA Paid Family and Medical Leave as a solution? We are in WA State so State tax is not applicable.

I am wondering if this would be the solution and appreciate your insight and knowledge. Thanks!

NeilZ
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Location: Dexter NM
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Re: Gift Card to employees

Post by NeilZ »

christybeth wrote:
Tue Jul 19, 2022 12:18 pm
A gift card was purchased for two of our employees for a facial or massage and I am trying to figure out how to include it in payroll as I understand it is considered taxable income as a gift card. This had been done once before and I had to consulted a CPA for correction of our 941's but hoping to avoid it this time around and to account for it properly. I have asked the staff not to give employees gift cards as this complicates things but they forgot. :wall:

Can I add a Pay Item with the type as Taxable Benefit and a description of "Gift Card" and set it up as taxable for Federal Withholding, Medicare, Social Security and WA Paid Family and Medical Leave as a solution? We are in WA State so State tax is not applicable.

I am wondering if this would be the solution and appreciate your insight and knowledge. Thanks!
First ... was the purchase done with church funds?
Second ... I would void those purchases (If you can) and setup the Pay Item not as a taxable benefit, but as 'income' which is what it is. Taxable benefits are excess insurance, etc, etc. Using Income, allows you to have an 'expense' account to charge against, and you can add the pay item with a value of zero, and not 'selected' for normal use. When needed you would 'select' it and add an amount.
Neil Zampella

Using PC+ since 1999.

christybeth
Posts: 72
Joined: Tue Feb 09, 2016 12:35 pm
Location: Washington State
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Re: Gift Card to employees

Post by christybeth »

1 - The gift cards were already purchased online with church funds. Hoping they will stop doing this as it creates a headache for their bookkeeper...me. :roll:

2 - I've been trialing this as it is not a pay week so I have some time to try and figure this out. I added a pay item as "Gift Card" and "Income" for the item type with Federal W/H, Medicare, Soc Sec & Wa Paid Fam & Med Leave selected for the tax options. I unselected the salary line in the Maintain List of Employees and added the Gift Card amount to see if this was accurate. It's giving a check amount of the gift card as payment to the employee less taxes paid by the employer & employee. It should just be taxing them for the amount. What am I doing wrong? I tried changing the Tax options to just Taxable and the same thing happened so I reverted back to what I initially did with the items checked as mentioned in the 2nd sentence above. Also, just to note that I did set it up to expense a fund line that we would use to occasionally buy tangible gifts for Birthdays, etc. (examples - cards, cake, flowers...).

Appreciate your help Neil!!

NeilZ
Posts: 10209
Joined: Wed Oct 08, 2003 1:20 am
Location: Dexter NM
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Re: Gift Card to employees

Post by NeilZ »

christybeth wrote:
Tue Jul 19, 2022 7:06 pm
1 - The gift cards were already purchased online with church funds. Hoping they will stop doing this as it creates a headache for their bookkeeper...me. :roll:

2 - I've been trialing this as it is not a pay week so I have some time to try and figure this out. I added a pay item as "Gift Card" and "Income" for the item type with Federal W/H, Medicare, Soc Sec & Wa Paid Fam & Med Leave selected for the tax options. I unselected the salary line in the Maintain List of Employees and added the Gift Card amount to see if this was accurate. It's giving a check amount of the gift card as payment to the employee less taxes paid by the employer & employee. It should just be taxing them for the amount. What am I doing wrong? I tried changing the Tax options to just Taxable and the same thing happened so I reverted back to what I initially did with the items checked as mentioned in the 2nd sentence above. Also, just to note that I did set it up to expense a fund line that we would use to occasionally buy tangible gifts for Birthdays, etc. (examples - cards, cake, flowers...).

Appreciate your help Neil!!
Having had more time to think about this, I remembered I had gone through something like this back in 2018. Here's what that thread was like.

viewtopic.php?f=3&t=13207&p=43114&hilit ... fts#p43114

As you will see, its what we call in programming a 'kludge', that is a workaround that is not very elegant, but it gets the job done.

As far as going forward, I'd have a long talk with any church board, as well as the staff, as the gift cards do not just cost the church the amount of the card, but also employer Social Security and Medicare fees. It also costs the employee the additional taxes they must pay. So the staff may think its a good idea, but it would be better to pass the hat and buy the gift cards from that collection so its not coming from the church. Or, as I recommended in the original thread, get them a Savings Bond ... no taxes on that :)
Neil Zampella

Using PC+ since 1999.

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