If my company is having a picnic and giving away gift cards as prizes, do they have to pay a gift tax?

Question

The gift cards are all in $5.00 denominations

Answer 1

No.  Gift tax happens when individuals give away money.  It is essentially a tax that discourages gifting to avoid inheritance taxes.

Answer 2

At my husbands job when they have their fall party they give prizes away. No matter how small the amount the gift is worth the tax is taken out of their paychecks the next week.  

Answer 3

No, it is not taxable.  It has nothing to do with payroll.

A gift in the amount of $50.00 or less in not a taxable event for the recipient. It is one of the exceptions to the rule in tax law where an expense of one party must be income to another. The company can right off the gift, but you do not declare income.

That is the reason holiday gifts of $50 or under from employer do not show up as income.

Answer 4

No.  Gift taxes are paid by individuals, not corporations.

As gift cards are almost the same as cash, the HR/payroll dept. should track who gets them and adjust their next paycheck for the taxes.  Is this done all the time? No.  Should it be?  Yes.

Answer 5

I agree with Frank.  I worked in a sales/promotion department for a company and if we gave away anything that was worth $50 or more, we had to record the employee's ssn for tax purposes.  We handed out $5 gift cards all the time and taxes were never accessed to the employees.