If you are an organization that relies heavily on volunteers, you likely struggle to find ways to say “Thank You” to those who give of their time, especially those few stellar volunteers who have either been with your organization for a long time, or who have spent extraordinary amounts of time serving your cause. While the free t-shirt or occasional lunch is nice, many organizations want to do more and have found that the “Thank You” plaques just aren’t quite as meaningful. So they turn to gift cards, because it isn’t cash, and the recipient can spend it however they want.
WARNING! Doing so is actually a taxable event to the recipient, and they could now qualify as a paid employee subject to employment taxes, withholdings, and issuance of a Form W-2. In the eyes of the IRS, gift cards (in any amount) are cash equivalents, which is the same as compensation. And if your organization relies on the volunteer labor force to keep certain income (such as that from your thrift store) from being subject to UBIT, you may jeopardize that exemption.
Katie L. Thomas, CPA