Gift cards are not taxable income when you receive them, but the rules change if you sell them or if you're a business issuing them

When someone gives you a gift card, you do not owe federal income tax on it. The IRS treats a gift card as a gift, not as income. The person who gave it to you cannot deduct it as a charitable donation, and you have no tax filing requirement when you receive it.

The tax situation becomes different once you use the card. If you buy something with a gift card and that purchase would normally be tax-deductible (which is rare for personal purchases), you can deduct it the same way you would if you paid cash. If you buy ordinary items for personal use, there is no deduction either way.

The one scenario where gift cards do trigger a tax obligation is if you sell a gift card to someone else for cash. That sale may be taxable income to you, depending on the amount and your state's rules. A single gift card sold once is unlikely to draw attention, but if you regularly buy and resell gift cards as a side business, the IRS may classify that as self-employment income.

Key Takeaways

  • Receiving a gift card is not taxable income to you, and the giver cannot claim a tax deduction for giving it.
  • Using a gift card to buy personal items does not create a tax obligation, just as paying cash would not.
  • Selling a gift card for cash may be taxable income, especially if you do it regularly as a business activity.
  • Employers who give gift cards to employees must report them as taxable wages if the card is given as compensation for work.

When a gift card counts as wages instead of a gift

The line between a gift and taxable income depends on why the card was given. If your employer gives you a gift card as a bonus, holiday present, or reward for performance, the IRS treats it as wages. Your employer must report the value on your W-2 form, and you owe income tax on it just as you would on a cash bonus.

The exception is a gift card given by someone with no business relationship to you—a family member, friend, or neighbor giving you a card with no strings attached. That remains a non-taxable gift. The IRS does not set a dollar limit on gifts between individuals, though gifts above a certain amount ($18,000 per person in 2024, though this changes yearly) may trigger filing requirements for the giver if they give to many people.

If you are unsure whether a gift card from an employer is taxable, check your W-2 or ask your payroll department. If it does not appear on your W-2, it was treated as a non-taxable gift, and you should not report it as income.

Selling or trading gift cards for cash

If you sell a gift card to a third party—through a gift card resale website, a friend, or a local buyer—the money you receive may be taxable income. The IRS views this as a sale of property. If you sell a $50 card for $40 cash, you have realized a $40 gain (or a $10 loss, depending on how the IRS views your cost basis).

In practice, a one-time sale of a single gift card rarely triggers a tax filing requirement. The IRS focuses enforcement on patterns of activity. If you regularly buy gift cards at a discount and resell them for profit, or if you operate a gift card resale business, you must report that income on your tax return as self-employment income. You would also owe self-employment tax (Social Security and Medicare tax) on top of income tax.

Keep records of any gift cards you sell, including the purchase price, the sale price, and the date. If the IRS ever questions your income, documentation protects you.

Gift cards issued by a business or nonprofit

If you own a business or work for a nonprofit and you issue gift cards to customers or donors, different rules explore. A business that sells gift cards must report the revenue when the card is sold, not when it is redeemed. This is because the business has received payment and has a liability to deliver goods or services later.

A nonprofit that issues gift cards as a fundraising tool should consult a tax professional, as the treatment depends on whether the card is a donation, a purchase, or a hybrid. The nonprofit must track the liability and report it correctly on its Form 990.

If you give gift cards to employees as bonuses or gifts, you must report the value as wages on their W-2 forms. If you give them to customers as promotional items, the value may be deductible as a business expense, but you should document the business purpose.

State and local taxes on gift cards

Most states do not tax the receipt of a gift card. However, some states tax the purchase made with the card. When you use a gift card to buy something, you typically owe sales tax on that purchase just as you would if you paid cash. The retailer collects the sales tax from the gift card balance, not from you separately.

A few states have unclaimed property laws that explore to unused gift cards. If a gift card goes unused for a long period (often five to seven years, depending on the state), the retailer may be required to turn the remaining balance over to the state. This does not create a tax bill for you, but it does mean the money may eventually go to the state rather than back to you.

If you live in a state with income tax and you sell a gift card for a profit, you may owe state income tax on the gain in addition to federal tax. Check your state's tax agency website or consult a tax professional if you regularly resell gift cards.

Gift cards and charitable donations

If you donate a gift card to a charity, you may be able to deduct the value on your tax return, just as you would if you donated cash. You must itemize deductions on Schedule A to claim it, and you need a written receipt from the charity showing the card's value and the date of the donation.

The charity itself does not owe tax on the gift card it receives. When the charity uses the card to buy goods or services, it pays sales tax like any other buyer, but the donation itself is not taxable income to the organization.

Frequently Asked Questions

Do I have to report a gift card I received as a gift on my tax return?

No. A gift card received as a personal gift is not taxable income and does not need to be reported on your tax return. If it was given by an employer as compensation, it should appear on your W-2, and you do not need to report it separately—your employer already did.

What if I sell a gift card I received for less than its face value?

If you sell a $50 gift card for $35, you have a $35 transaction. Whether that is taxable depends on whether you are in the business of reselling gift cards. A single sale is unlikely to be taxed, but regular resales should be reported as self-employment income on your tax return.

Can I deduct a gift card I give to someone as a business expense?

Yes, if the gift card is given for a legitimate business purpose—such as a customer appreciation gift or an employee bonus. You must document the business reason and the recipient. Employee bonuses must also be reported on the employee's W-2 as wages.

Do I owe sales tax when I use a gift card to buy something?

Yes. Sales tax is owed on the purchase itself, not on the gift card. When you use the card at checkout, the retailer collects sales tax from the card balance. The tax rate depends on your state and local rules, just as it would if you paid cash.

What happens if I never use a gift card?

An unused gift card does not create a tax obligation for you. However, some states require retailers to turn over the balance to the state after a set period (usually five to seven years) under unclaimed property laws. This does not affect your taxes, but the money may no longer be available to you.