Gift cards themselves are not taxed when you buy or receive them

When you purchase a gift card or receive one as a gift, there is no federal tax on the card itself. The IRS does not treat the purchase or receipt of a gift card as a taxable event. You can buy a $100 gift card and give it to someone without filing anything or owing tax on that transaction.

The tax question only arises when the gift card is actually used to buy something. At that point, the person spending the card pays sales tax on the item they purchase — the same sales tax they would pay if they bought it with cash or a credit card. The gift card is simply a payment method, like any other.

Key Takeaways

  • Buying or giving a gift card is not a taxable transaction for either the buyer or the recipient.
  • Sales tax applies when the gift card is spent, not when it is purchased or given.
  • If you receive a gift card from an employer as a bonus or reward, it may be treated as taxable income on your W-2.
  • Unused gift card balances do not create a tax liability in future years.
  • Gift cards given to employees by businesses are reported differently than gift cards given to family members.

When an employer gives you a gift card, it counts as income

If your employer gives you a gift card as a bonus, holiday gift, or performance reward, the IRS treats it as taxable compensation. The value of the card is added to your W-2 wages for the year you receive it, and income tax is withheld from your paycheck just as it would be for a cash bonus.

This applies whether the gift card is for a specific store, a restaurant, or a general-purpose card like a Visa gift card. The employer is required to report the value to the IRS. If your employer gives you a $50 gift card in December, you will see that $50 added to your taxable income for that year, and your tax withholding will increase accordingly.

The only exception is if the gift card is a de minimis fringe benefit — a very small gift of minimal value that the IRS does not require employers to report. The threshold is low and varies by situation, but a typical gift card would not may have access to. Check with your employer's payroll department if you are unsure whether a gift card was reported on your W-2.

Gift cards given to family members or friends have no tax impact

When you give a gift card to a family member, friend, or anyone outside a business relationship, there is no tax on either side. You do not report it, and the recipient does not report it. The gift card is treated the same way as any other personal gift — a birthday present, a holiday gift, or money handed to a relative.

The federal gift tax only applies to gifts above a certain threshold, and that threshold is very high. For 2024, you can give up to $18,000 per person per year without any gift tax filing requirement. A $100 or even a $500 gift card is nowhere near that limit. Even if you gave multiple gift cards totaling several thousand dollars to the same person in one year, you would still be well under the threshold for most people.

The recipient never owes tax on receiving the gift card, and they do not owe tax when they spend it — they only owe sales tax on the item purchased, which applies regardless of how they pay.

Businesses that give gift cards to customers do not trigger tax for the customer

If a store, restaurant, or other business gives you a gift card as a promotional item, a loyalty reward, or a customer appreciation gift, you do not owe tax on receiving it. The business may report it as a business expense, but that does not create a tax liability for you.

When you use the gift card to make a purchase, you pay sales tax on that purchase just as you normally would. The fact that you paid with a gift card rather than cash or a card does not change the sales tax calculation.

Unused gift card balances do not create future tax liability

If you receive a gift card and never spend it, you do not owe tax in any future year simply because the balance sits unused. There is no annual tax on unspent gift card balances, and the card does not expire for tax purposes.

Some states have laws about when a business can declare a gift card balance as abandoned property if it has not been used for a very long time — typically seven to ten years — but this is a business accounting rule, not a personal tax liability. You as the cardholder do not owe tax because of it.

Sales tax on gift card purchases depends on what you buy

When you spend a gift card, the sales tax you owe depends on what you purchase and where you live. If you buy a taxable item like clothing or electronics, you pay sales tax. If you buy a non-taxable item like groceries or prescription medications, you do not pay sales tax — even though you are using a gift card to pay.

The payment method — whether cash, credit card, or gift card — does not affect whether sales tax applies. The tax is based on the item and your state's tax rules. A $50 gift card spent on a restaurant meal in a state with sales tax will result in sales tax added to your bill, just as it would if you paid with a credit card.

Frequently Asked Questions

Do I have to report a gift card I received from a friend on my taxes?

No. Personal gifts, including gift cards, are not reported on your tax return. You only report income you earned or received as compensation. A gift card from a friend or family member is a personal gift and has no tax reporting requirement.

What if I received a gift card from my employer but it was not on my W-2?

Contact your employer's payroll or human resources department and ask whether the gift card was reported. If it was not reported and should have been, your employer may need to issue a corrected W-2. If it was intentionally not reported because it was below a certain threshold, your employer can explain the reason.

Can I deduct a gift card I give to someone as a business expense?

If you give a gift card as a business gift to a client or customer, you may be able to deduct it as a business expense, subject to IRS limits on business gifts. This is a deduction for your business taxes, not a tax on the recipient. The recipient does not owe tax on receiving it.

Do I owe tax on a gift card I won in a contest or raffle?

Yes. Prizes and winnings, including gift cards won in contests or raffles, are treated as taxable income. The organization running the contest should report the value on a Form 1099-NEC or similar document, and you report it on your tax return as other income.

What happens if a gift card expires before I use it?

You do not owe tax because a gift card expires. If you received it as a personal gift, there is no tax consequence. If you received it as an employee bonus, the tax was already withheld when you received it, and expiration does not change that. Check your state's gift card expiration laws — many states prohibit expiration dates or require very long periods before expiration.