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How To Record Gift Cards To Employees In QuickBooks

QuickBooks

Introduction.

Recording gift cards for employees in QuickBooks might not sound like the most exciting topic, but trust me, it’s one of those small things that can make a big difference in keeping your books accurate and your employees happy.

If you’ve ever handed out gift cards as bonuses, rewards, or holiday gifts, you know they’re a great way to show appreciation.

But here’s the thing: if you don’t record them properly in QuickBooks, it can lead to headaches down the road—think tax issues, messy financial records, or even confused employees.

I’ve been working with QuickBooks for years, and I’ve seen how easy it is to overlook something as simple as gift card entries.

But once you get the hang of it, it’s a breeze. In this article, I’ll walk you through exactly how to record gift cards for employees in QuickBooks, step by step.

I’ll also cover why it’s important, how it affects your taxes, and answer some common questions I get from clients. By the end, you’ll feel confident handling this in your own business.

Why Recording Gift Cards Correctly Matters

First, let’s talk about why this even matters. Gift cards are considered taxable income by the IRS. That means if you give a gift card to an employee, it needs to be reported on their W-2 form.

If you don’t record it properly, you could end up with discrepancies in your payroll taxes or even face penalties during an audit.

Plus, keeping accurate records helps you track your expenses and understand how much you’re spending on employee rewards or incentives.

According to a 2022 survey by the National Retail Federation, 55% of consumers said they’d like to receive gift cards as gifts, making them one of the most popular choices.

If you’re using them in your business, you’re not alone—but you do need to make sure they’re handled correctly.

How Do I Record Gift Cards in QuickBooks?

Now, let’s get into the nitty-gritty of how to record gift cards for employees in QuickBooks. I’ll break it down into simple steps so you can follow along easily.

Step 1: Set Up a Gift Card Account

If you haven’t already, you’ll need to create a dedicated account for gift cards in QuickBooks. This helps you keep track of how much you’re spending on them and ensures they’re categorized correctly.

  1. Go to the Chart of Accounts and click New.
  2. Choose Expense as the account type.
  3. Name the account something like “Employee Gift Cards” or “Gift Card Expenses.”
  4. Save the account.

Step 2: Record the Purchase of the Gift Cards

When you buy gift cards, you’ll need to record the purchase in QuickBooks. Here’s how:

  1. Go to the Expenses tab and click New Expense.
  2. Enter the vendor you purchased the gift cards from.
  3. Under Category, select the gift card account you just created.
  4. Enter the amount you spent on the gift cards.
  5. Save the expense.

Step 3: Issue the Gift Card to the Employee

When you give a gift card to an employee, it needs to be recorded as part of their compensation. Here’s how to do it:

  1. Go to the Employees tab and select the employee you’re giving the gift card to.
  2. Click Edit and then Payroll Info.
  3. Under Additions and Deductions, add a new line item for the gift card.
  4. Enter the amount of the gift card and select the appropriate account (the one you created earlier).
  5. Save the changes.

Step 4: Run Payroll

Since gift cards are considered taxable income, they need to be included in the employee’s payroll. When you run payroll, the gift card amount will be added to their wages and taxed accordingly.

  1. Go to the Payroll tab and run payroll as usual.
  2. QuickBooks will automatically include the gift card amount in the employee’s paycheck.
  3. Review and submit the payroll.

FAQs

I get a lot of questions about this topic, so I’ll answer a few of the most common ones here.

Q: Do I need to include gift cards in an employee’s W-2?

A: Yes, gift cards are considered taxable income and must be reported on the employee’s W-2 form.

Q: What if I give a gift card to an independent contractor?

A: Gift cards given to independent contractors should be reported on a 1099 form, not a W-2.

Q: Can I deduct the cost of gift cards as a business expense?

A: Yes, as long as the gift cards are given for business purposes (like employee rewards), you can deduct the cost as a business expense.

Q: What if I forget to record a gift card?

A: If you forget to record a gift card, you’ll need to go back and add it to the employee’s payroll. You may also need to file an amended W-2 if the tax year has already ended.

Wrapping It Up

Recording gift cards for employees in QuickBooks might seem like a small task, but it’s an important one.

It keeps your books accurate, ensures compliance with tax laws, and helps you track your expenses. Plus, it’s a great way to show your employees you appreciate their hard work.

I hope this guide has made the process clear and easy to follow. If you have any other questions or run into any issues, feel free to reach out.

And now, I’m curious—how do you currently handle employee rewards or bonuses in your business? Have you ever used gift cards before?

What do you think?

Written by Udemezue John

Hello, I'm Udemezue John, a web developer and digital marketer with a passion for financial literacy.

I have always been drawn to the intersection of technology and business, and I believe that the internet offers endless opportunities for entrepreneurs and individuals alike to improve their financial well-being.

You can connect with me on Twitter Twitter.com/_udemezue

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