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Revenue recognition rules for gift cards The cash received from the sale is paid upfront but does not qualify for revenue recognition as no goods or services have been exchanged. Gift card purchases are recorded as deferred revenue and subsequently recognized as revenue as the gift card is redeemed in the future.
Background. Are gift cards taxable income for employees? When you give a gift card to an employee, you must report the value of the gift card as taxable income if it can be used like cash. The IRS considers gift cards as a taxable fringe benefit, because it is a cash equivalent item.
Tax Treatment of Cash and Non-Cash Gifts to Employees They have to be categorized as taxable and non-taxable. For the taxable gifts, the business owner has to deduct income tax, CPP, and GST (in some cases) and show it in the T4 slip. There is no need to deduct EI for non-cash items.
The essential accounting for gift cards is for the issuer to initially record them as a liability, and then as sales after the card holders use the related funds.
Gift cards given to employees in any amount count as taxable income and must be reported. You must report the cash value of gift cards as part of an employees wages on Form W-2. Improper reporting can result in an IRS notice and penalty.
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Setting up physical gift cards Research gift card providers. This may be your POS system provider, a merchant bank or a third-party gift card vendor. Choose a provider, then design and order cards. Establish gift card policies and train your employees on them.

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