How to Record Gift Cards as Taxable Income

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Posted on by PattiK323

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How do I transact gift cards given to employees in Payroll so that these are properly recorded as taxable income but that there is no impact to the employees' net pay?

For example-if an employee is given a $50 gift card. Using supplemental rates of 22% Federal and 5.3% state, the grossed up amount is $76.86.

If I use a Pay Code of 50GC, for example for $76.86, the taxes will calculate automatically (assuming that the pay code is set up with the flat tax rates).

But, what do I do with the $50 remaining? I don't actually want the employee to get the $50 as additional net pay, as they've received a gift card for this value.

Conversely, if I do as a taxable Benefit, using a similar code and setup, the employee will be hit for the $26.86 in taxes, resulting in lower net pay than they should receive.

I'm not quite clear how to do this.

Thank you to anyone who is willing and able to help.

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Microsoft Dynamics GP

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lasmith 7 on at

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How to Record Gift Cards as Taxable Income

You should create a benefit code for the gift card. Make sure you check mark all the tax boxes. You can use the flat tax rates for the supplement tax rates. This will add to their earnings, but will not pay them again. Make sure to gross up the FICA if your company is covering that too.
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Terry R Heley Microsoft Employee on at

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How to Record Gift Cards as Taxable Income

Typically, I think people would run it through as a taxable benefit and maybe just let it go at the normal tax rate vs what you listed above.

If you don't want to do that. You could always just update the taxable Benefit amount with manual checks and it will add to the W2 amounts, you would want to test this out to make sure it works for your case as well depending on what other taxes it is taxed with.

Thanks

Terry Heley
Microsoft