Gift Cards are very tricky when it comes to IRS guidelines and should be handled with care and in the proper manner to avoid any tax liability and improper use.
Gift cards can be given for benevolence needs in the form of gas, meals and groceries gift cards and the law requires that a proper financial assistance request is filled out by the recipient and that a photo id be obtained of that individual as proof of the individual receiving the benevolence. These cards should be of little to no value of more than 20.00 dollars. The same individual should not receive gift cards on a constant basis or a tax liability and individual benefit could incur. Any individual benefit will lead to a loss of tax exemption for the church.
Gift cards can never be given to pay for an individuals rental assistance, power bills, medical bills or any other type of benevolence need such as this. Please view the guidelines on what the IRS expects on running a Benevolence Fund.
Receipts are required to be obtained for the purchases of gift cards. If you use your purchase card to buy one of the type of acceptable gift card below then IRS finds that the receipt obtained from the purchase is acceptable as proof of documentation. The receipt shows what the gift card was (IE: Subway) and the benevolence assistance form and ID shows who the documented recipient was and what the use of the gift card was for.
Acceptable gift card examples:
Subway Gift Card
Safeway Gift Card
Chevron Gift Card
Unacceptable gift cards: These gift cards do not hold up to IRS guidelines and denote giving cash to an individual for personal benefit. These cards can’t be substantiated as to what it was used for and why. Simply stating what you used it for is not proof or a traceable form of documentation.
Visa Gift Cards
Master Card Gift Cards
American Express Gift Cards etc…
Gift cards to employees must have the grossed-up gift card value reported on Form W-2. Giving gift cards to volunteers legally turns them into employees of the church and the volunteer would be subject to labor laws as well as employment tax liabilities. Giving the occasional nominal gift under 25.00 such as a turkey at thanksgiving or having a pizza party for all volunteers or employees would not trigger a volunteer employment issue nor would an employee be required to have that reported on their W-2.