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IRS view on Gift Cards to Teachers

10 years 1 month ago #62593 by ptomom99
I was on the previous PTO Board and read an article regarding gift cards/certificates to teachers was frowned upon by the IRS when you are a 501(c)(3) organization. I cannot find that for the life of me and now the new President, who was the President four years ago is back in office and wanting to give gifts cards to teachers because the fall fundraisers have exceeded expectations. This is in addition to Teacher Appreciation that will be done in the spring. I need to find some information urgently to keep us out of trouble with the IRS.

Any assistance is greatly appreciated. Thanks.
10 years 1 month ago #62594 by JHB
Since 2004, the IRS has issued some clarifications about gift cards/gift certificates being taxable as income for employees.

Employers can give a property or service that is small in value as a (non-taxable) fringe benefit. So this covers a Christmas turkey, a retirement gift, a service award.

However, when employers started giving gift certificates or gift cards, the IRS stepped in and said this was the same as giving cash income, so someone had to pay taxes. There were some lawsuits and it was a mess, so people are wary of those rulings.

I honestly don't know how this applies to 501(c)(3)'s as it's not an employer/employee situation. Several posters on the Forum do give their teachers gift cards as a stipend for classroom supplies. It's not a practice I would endorse because to me it's the same as cash and defeats the purpose of accountability. When our PTO did this, giving each teacher $50 (or whatever), we always reimbursed the teachers when they submitted receipts. Then it's clearly an expense and not a personal gift.

Whatever you decide - gift or stipend - giving a teacher a $50 giftcard is exactly the same as giving them a $50 bill (or whatever amount). My question would be - would you still do this if it was currency you were handing out? (The imagery/suitability shifts a bit, doesn't it?)

Again - I haven't seen the issue of PTOs/PTAs doing this for teachers specifically addressed. But I don't see how it would be considered much different.

To research this further, just Google the following:

+IRS +"gift cards"

There's also a little about the topic in this IRS Newsletter .

I'd be interested if anyone has spoken to a tax advisor/non profit lawyer about this.

[ 11-27-2006, 11:55 PM: Message edited by: JHB ]
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