A gift certificate is a prepaid voucher that lets someone buy goods or services at a specific store or business

A gift certificate is a card or document that holds a dollar amount the giver has already paid. The recipient uses it to purchase items at that business instead of using cash or a card. The store keeps the money until the certificate is redeemed, and the buyer gets goods or services worth that amount.

Gift certificates differ from gift cards mainly in how they are issued. A gift certificate is often printed on paper or cardstock and may be handwritten or filled in by hand at the register. A gift card is a plastic card with a magnetic strip or chip, similar to a debit card. Both work the same way at checkout: the store deducts the certificate or card value from the purchase total.

The business that issues the certificate keeps the full amount as revenue the moment it is sold, even if the recipient never uses it. This is why stores actively sell gift certificates—they get paid upfront and may never have to deliver the goods.

Key Takeaways

  • A gift certificate is a prepaid voucher worth a set dollar amount that the recipient can spend at a specific business.
  • The giver pays the full amount when purchasing the certificate, and the store records it as revenue when ready.
  • Gift certificates do not expire in most states, though some businesses print expiration dates on them anyway.
  • If a gift certificate is lost or stolen, the original purchaser usually cannot get a refund unless the business chooses to offer one.
  • A gift certificate can only be used at the issuing business or its affiliated locations, unlike a prepaid Visa or Mastercard.

How a gift certificate works at the point of sale

When someone brings a gift certificate to the register, the cashier scans or enters the certificate number into the system. The store's computer looks up the remaining balance and deducts the purchase amount from it. If the purchase costs less than the certificate value, the remainder stays on the certificate for future use. If the purchase costs more, the buyer pays the difference with cash, a card, or another payment method.

Some businesses allow the recipient to use multiple gift certificates on one transaction. Others limit it to one per visit. The store's policy determines this, and it is usually printed on the back of the certificate or posted at checkout.

Unlike a credit card, a gift certificate cannot be used to withdraw cash. The balance can only be spent on merchandise or services the business offers. If the recipient does not use the full amount, they can return to the store later and use the remaining balance until it reaches zero.

Who issues gift certificates and what they cover

Retail stores, restaurants, salons, gyms, movie theaters, and online retailers all issue gift certificates. Some are issued by the business directly at the register or customer service desk. Others are sold through third-party websites or kiosks in grocery stores and pharmacies.

A gift certificate is valid only at the business that issued it. A Starbucks gift certificate cannot be used at a competitor's coffee shop. However, some large companies with multiple locations or brands allow certificates to be used across all their stores. For example, a certificate from a parent company might work at any of its subsidiary restaurants.

The certificate covers whatever the business sells—food, clothing, services, or experiences. Some businesses exclude certain items, such as sale merchandise or gift cards themselves, though this is less common with traditional gift certificates than with store credit.

Expiration dates and state laws

Many states have laws that prevent gift certificates from expiring or that require very long expiration periods. Federal law does not set a standard, so the rules vary by location. Some states say a gift certificate cannot expire at all. Others allow expiration dates of five to ten years. A few states have no restrictions, allowing businesses to set their own terms.

Even if a business prints an expiration date on the certificate, that date may not be legally enforceable depending on where the business operates and where the certificate was purchased. The safest approach is to use a gift certificate within a year or two of receiving it, regardless of what the certificate says.

If a gift certificate has expired and the state law protects it, the recipient can contact the business and ask for the balance to be restored. Some businesses will do this as a courtesy even if they are not required to by law. Others will not. There is no may provide of recovery after expiration, so prompt use is the best protection.

What happens if a gift certificate is lost or stolen

If a gift certificate is lost or the recipient loses it before using it, the original purchaser typically cannot get a refund. The store has already received the money and recorded it as a sale. The certificate is treated like cash—once it leaves the buyer's hands, the store does not track who owns it or reimburse the original buyer if it goes missing.

Some businesses will replace a lost certificate if the original purchaser can provide proof of purchase, such as a receipt. This is a courtesy, not a legal requirement in most places. Policies vary widely, so the buyer should ask the business directly whether replacement is an option.

To protect against loss, the person who receives a gift certificate should treat it like cash and store it in a safe place. Unlike a credit card, there is no fraud protection or way to cancel it if someone else finds it and uses it.

Gift certificates versus gift cards versus store credit

A gift certificate and a gift card serve the same purpose but differ in form and sometimes in how they are tracked. A gift certificate is usually paper or cardstock. A gift card is plastic with a magnetic strip or chip. Both hold a specific dollar amount that the recipient can spend at the issuing business.

Store credit is different. It is issued when a customer returns merchandise without a receipt or when a business offers compensation for a problem. Store credit is usually recorded in the store's system under the customer's name or phone number, not on a physical card. The customer must provide that information at checkout to use it.

A prepaid Visa or Mastercard is not the same as a gift certificate. A prepaid card can be used anywhere that accepts Visa or Mastercard, not just at one business. It functions like a debit card and offers more flexibility, but it may carry fees that a gift certificate does not.

Why businesses issue gift certificates

Stores issue gift certificates because they generate upfront revenue. When someone buys a $50 gift certificate, the business receives $50 when ready, even if the recipient never redeems it. This is called breakage—the portion of gift certificates that are never used. For many businesses, breakage represents a significant profit margin.

Gift certificates also bring new customers into the store. Someone who receives a certificate from a business they have never visited may become a regular customer. They may spend more than the certificate value or return after it is used up.

From an accounting standpoint, a gift certificate is a liability until it is redeemed. The business owes goods or services equal to the certificate's value. Once redeemed, the liability is satisfied and the transaction is complete.

Frequently Asked Questions

Can a gift certificate be transferred to someone else?

Yes. A gift certificate is not tied to a specific person's name the way store credit usually is. Anyone who has the physical certificate can use it at the register. If you receive a gift certificate you do not want to use, you can give it to someone else, and they can spend it without any problem.

What if I lose the certificate number or barcode?

If the certificate has a barcode or number printed on it, the cashier can look up the balance using that information. If the certificate is damaged and the barcode is unreadable, contact the business's customer service with your proof of purchase. They may be able to look up the balance in their system, though this depends on the business's policy.

Can I use a gift certificate to buy another gift certificate?

Most businesses do not allow this. They typically exclude gift certificates and gift cards from purchases made with a gift certificate. This prevents customers from converting a gift certificate into cash or using it to buy a more flexible prepaid card. Check the business's policy before attempting this at checkout.

Do I have to pay tax on a gift certificate purchase?

No. When you buy a gift certificate, you pay the face value only. Sales tax is collected when the recipient redeems the certificate and purchases goods or services. The tax is based on what they buy, not on the certificate itself.

What if the business closes before I use my gift certificate?

If the business goes out of business, the gift certificate is usually worthless. You have no legal claim to the funds unless the business was operating in a state with specific consumer protection laws. Some states require businesses to honor gift certificates even in bankruptcy, but this is not universal. There is no federal protection for unused gift certificates if a business closes.