Skip to the main content.

Platform

What is Paytronix CXP?

Combining online ordering, loyalty, omnichannel messaging, AI insights, and payments in one platform. Paytronix delivers relevant, personal experiences, at scale, that help improve your entire digital marketing funnel by creating amazing frictionless experiences.

A Complete Customer Experience Platform
Online Ordering
Acquire new customers and capture valuable data with industry leading customization features.
Loyalty
Encourage more visits and higher spend with personalized promotions based on individual activity and preferences.
Catering
Grow your revenue, streamline operations, and expand your audience with a suite of catering tools.
CRM
Build great customer relationships with relevant personal omnichannel campaigns delivered at scale.
Artificial Intelligence
Leverage the most data from the most customer transactions to power 1:1 marketing campaigns and drive revenue.
Payments
Drive brand engagement by providing fast, frictionless guest payments.

Solutions

Paytronix CXP Solutions

We use data, customer experience expertise, and technology to solve everyday restaurant and convenience store challenges.

Contactless Experiences
Accommodate your guests' changing preferences by providing safe, efficient service whether dining-in or taking out.
Customer Insights
Collect guest data and analyze behaviors to develop powerful targeted campaigns that produce amazing results.
Marketing Automation
Create and test campaigns across channels and segments to drive loyalty, incremental visits, and additional revenue.
Mobile Experiences
Provide convenient access to your brand, menus and loyalty program to drive retention with a branded or custom app.

Subscriptions
Create a frictionless, fun way to reward your most loyal customers for frequent visits and purchases while normalizing revenues.
Employee Dining
Attract and retain your employees with dollar value or percentage-based incentives and tiered benefits.
Order Experience Builder
Create powerful interactive, and appealing online menus that attract and acquire new customers simply and easily.

Multi-Unit Restaurant

Loyalty Programs
High-impact customizable programs that increase spend, visit, and engagement with your brand.
Online Ordering
Maximize first-party digital sales with an exceptional guest experience.
Integrations
Launch your programs with more than 450 existing integrations.

Small to Medium Restaurants

Loyalty Programs
Deliver the same care you do in person with all your digital engagements.
Online Ordering
Drive more first-party orders and make it easy for your crew.

Convenience Stores

Loyalty Programs
Digital transformations start here - get to know your guests.
Online Ordering
Add a whole new sales channel to grow your business - digital ordering is in your future.
Integrations
We work with your environment - check it out.

Company

About Paytronix

We are here to help clients build their businesses by delivering amazing experiences for their guests.

Meet The Team
Our exceptional customer engagement innovations are delivered by a team of extraordinary people.
News/Press
A collection of press and media about our innovations, customers, and people.
Events
A schedule of upcoming tradeshows, conferences, and events that we will participate in.
Careers
Support
Paytronix Login

Order & Delivery Login

Resources

Paytronix Resources

Learn how to create great customer experiences with our free eBooks, webinars, articles, case studies, and customer interviews.

FlightPaths

FlightPaths are structured Paytronix software onboarding journeys designed to simplify implementation and deliver maximum ROI.

Customer Success Plans

Customer Success Plans (CSPs) are tiered service offerings designed to help you get the most from your Paytronix software, whether you prefer self-guided support or hands-on partnership.

See Our Product In Action
E-Books
Learn more about topics important to the restaurant and c-store customer experience.
Reports
See how your brand stacks up against industry benchmarks, analysis, and research.

Blog
Catch up with our team of in-house experts for quick articles to help your business.
Case Studies
Learn how brands have used the Paytronix platform to increase revenue and engage with guests.


2025 Loyalty Report

Is your brand tapping into these three unshakeable pillars of guest loyalty in 2025?

5 min read

Gift Cards and Taxes: Navigating the Details with Confidence

Gift Cards and Taxes: Navigating the Details with Confidence

Gift cards offer your restaurant a wealth of benefits. Not only do they provide stabilized revenue streams; they also help spread brand awareness and boost employee morale.  

As of 2023, the global market for gift cards is valued at $984.3 billion. About 61% of customers spend more than their gift card amount (often regardless of inflation), resulting in increased revenue for the restaurant. Additionally, a business that rewards employees with gift cards often sees a spike in employee satisfaction and decreased turnover rates.  

Whether you’re just kicking off a gift card strategy for customers or rewarding employees, it’s essential that you’re familiar with the tax implications. Gift cards present a unique set of tax regulations. Your restaurant business must ensure compliance to avoid legal and financial issues.  

Luckily, we’ve collected the information you need to know. In this article, we’ll look at proper tax treatment of gift cards, reporting, compliance, and how gift cards can enhance your loyalty strategy. 

Understanding Gift Cards and Taxes 

Modern-day customers want to stretch each dollar as far as possible. Loyalty programs, including reward dollars (which are roughly the points-based equivalent of gift cards) are compelling options. When done well, gift cards can increase guest engagement. Here’s how to start setting up your gift card program to maintain compliance. 

Pro tip: According to a report from Bank of America, digital gift cards tend to contain higher amounts. In 2023, the average digital gift card held $83.95, whereas a physical gift card contained $63.86. Consider taking a mobile-first approach when developing your gift card reward program. 

Tax Treatment of Gift Card Sales 

First, let’s look at the tax treatment of gift card sales. As a business, you have two options for how you capture gift cards when reporting income:

  • Recognized upon receipt (cash-basis taxpayer): This is the default method for most businesses. The income is documented when cash is received to purchase the gift card.  
  • Deferral until subsequent year (accrual-basis taxpayer): If requirements under Code Section 451(c) and Reg. Sec. 1.451-8 are met, it’s possible to defer the taxes until the following year. 

Say you sell a gift card for $50, but only $25 is redeemed by the end of the tax year. The default method would require you to capture the $50 sale for that year. However, if you qualify for the regulations of Reg. Sec. 1.451-8, you may be able to defer some of the taxable income. 

In the deferred revenue option, unused cash from a sold gift card is considered a liability until redeemed or recorded as breakage.  

3 Misconceptions About Gift Card Taxation 

Given the options and complexity of gift card tax treatment, it’s easy to have misconceptions. Here are three of the most common myths around gift cards and taxation:

One:

  • Myth: Income is recognized only when the gift card is redeemed. 
  • Truth: A cash-basis taxpayer will report the income when a customer purchases the gift card. An accrual-basis taxpayer will recognize the income at the redemption of the gift card if it’s redeemed in the same year it was purchased. 

Two:

  • Myth: All unredeemed gift cards are immediately profit-generating. 
  • Truth: Every year, businesses calculate their average breakage. Breakage is the amount on a gift card a business believes will never be redeemed. This number is calculated based on historical averages. 

Three:

  • Myth: Gift cards and comp cards are the same thing.  
  • Truth: Complimentary cards and programs, or comp cards—not to be confused with the modeling industry’s composite cards—encourage customers to purchase from your business for exclusive discounts or prizes. On the other hand, gift cards contain a preloaded sum without any special reward attachments.  

What to Know About Breakage and Taxation 

Breakage is considered revenue the business gains for gift card amounts not redeemed. When companies report their annual income, they estimate the amount of breakage based on past numbers. 

For example, you sell a gift card for $50. The customer uses $20, leaving $30 remaining on the card. As the business, you remove $20 from your gift card liability and report it as revenue. The standing $30 gift card balance is marked as breakage. 

Historically, handling gift card accounting and taxes for breakage has proven challenging. In 2016, the Financial Accounting Standards Board (FASB) created a new model to reduce breakage ambiguity. The model couples historical breakage data with the ASC 606 policy, which states that a business must track gift card sales and redemption rates to gain real-time data. With this information, a company can report and estimate breakage as accurately as possible.  

Employee Gift Cards and Taxes 

2 Tax Considerations for Employee Rewards 

Rewarding employees with gift cards is a way for businesses to show their appreciation for an employee’s hard work. Yet, businesses who opt for gift card rewards should be acquainted with the related tax considerations. There are two ways to break it down:

  1. De minimis fringe benefits: Additional benefits such as meal money or transportation expenses given to an employee for working overtime. They are excluded from taxable income under Revenue Code section 132(a)(4). 
  2. Taxable income: Standard income, such as a gift card with funds preloaded, is given to the employee as a reward. It’s considered an additional wage and treated according to payroll taxes. 

In sum, gift cards that are rewarded to customers and redeemable for general merchandise are subject to the same regulations as taxable income. 

Pro tip: When selecting a gift card provider, consider that gift card software program's data collection and reporting. To ensure you and your staff don’t find yourselves in the middle of a regulatory nightmare, it’s important to work with companies that adhere to the latest data and reporting practices to ensure compliance with governing entities. 

Reporting and Compliance Requirements  

When you give a gift card to an employee, you must report its value as taxable income. According to the IRS, gift cards fall under the cash equivalent fringe benefit category. This means their value must be recorded as taxable income, withholding Social Security and Medicare Tax. 

Some businesses will “gross up” before running payroll. This process includes adding funds to the gift card in an amount that covers the taxes owed on that sum. So, you would calculate the taxes an employee would owe upon receiving a gift card and add that amount to the gift card. It’s the opposite of withholding taxes and deductions from the payment. In this case, the employee is responsible for paying those taxes at the end of the year.

If you opt not to gross up, you’ll report the gift card on the employee’s W2, withholding the same amount for taxes and deductions as you would for regular income. The total gift card sum lives under the boxes for wages, tips, and compensation. Generally, you’ll record gift cards as part of the employee’s wages.  

The Bottom Line 

Comprehensive Tax Compliance Tips 

Opting to reward employees with gift cards comes with a wealth of benefits. However, you must maintain compliance. Here are the key factors to keep in mind:

  • Conduct regular financial audits 
  • Maintain accurate record-keeping 
  • Stay up to date on changing tax laws 

Consulting with Tax Professionals 

In the face of changing tax rules and regulations, working with a professional who can ensure you stay compliant may be helpful. This is especially useful if you’re a business with large-scale, complex, or automated gift card programs. 

A consultation with a tax professional allows you to get tailored advice regarding:

  • Navigating the nuances of tax regulations 
  • Ensuring compliance with tax laws 
  • Optimizing tax obligations related to gift cards 

Working with a professional is the easiest way to ensure you avoid mistakes and remain compliant when rewarding your employees with gift cards. With the right support, you can make the most of your gift card marketing campaigns and sales, and rest assured that you’re rewarding your employees responsibly.  

Paytronix drives gift card loyalty programs all within one intuitive and cohesive platform. Contact us today for a free demo. 

Gift Cards Vs. Comp Cards: 7 Reasons You Need Both to Grow

Gift Cards Vs. Comp Cards: 7 Reasons You Need Both to Grow

Gift cards and comp cards are powerful tools in your business toolkit, each with a different purpose. Knowing the difference between these two is...

Read More
9 Ways to Have a Top 1% Gift Card Program Management Plan

9 Ways to Have a Top 1% Gift Card Program Management Plan

In today's retail and hospitality sectors, gift card programs are more important than ever. According to our 2023 Restaurant Gift Card Sales Report,...

Read More
3 Subscription-Based Loyalty Programs to Model Yours After

3 Subscription-Based Loyalty Programs to Model Yours After

It’s safe to say that the modern customer is acquainted with subscription models. Streaming services and media outlets are two common subscriptions...

Read More
What's the Average Restaurant Rent as a Percentage of Sales?

What's the Average Restaurant Rent as a Percentage of Sales?

Rent is one of the biggest fixed costs in the restaurant business. For those in the F&B industry, understanding how much of your gross sales should...

Read More
Digital Marketing for Restaurants: 12 Tips for Any Budget

Digital Marketing for Restaurants: 12 Tips for Any Budget

Restaurant digital marketing is one of the most effective ways to reach a bigger audience, driving search engine performance, and securing new...

Read More
How to Detect and Prevent Gift Card Fraud in Your Restaurant

How to Detect and Prevent Gift Card Fraud in Your Restaurant

Thousands of restaurant owners see gift cards as a great way to boost sales and delight customers. Recent studies show global gift card sales have...

Read More
Average Restaurant Revenue: 23 Tips for Improving Performance

Average Restaurant Revenue: 23 Tips for Improving Performance

A profitable restaurant business means it generates more income than it spends. It will also have a comfortable financial safety net as well as the...

Read More
3 Reasons Your Restaurant Needs an Unshakeable Gift Card Program

3 Reasons Your Restaurant Needs an Unshakeable Gift Card Program

A gift card program is a savvy, low-cost strategy to increase restaurant sales and growth. It enables customers to purchase and give away gift cards...

Read More
9 Local Store Marketing Ideas for Restaurants to Use Now

9 Local Store Marketing Ideas for Restaurants to Use Now

Picture this: you run a local restaurant that has truly amazing food, super friendly service, and the most welcoming vibe on the block. But if local...

Read More
Using Multi-Restaurant Gift Cards to Grow Your Business

Using Multi-Restaurant Gift Cards to Grow Your Business

Multi-restaurant gift cards are a powerful tool you can use to attract customers who want both variety and flexibility when it comes to buying a...

Read More
A Holiday Gift Card Promotions Plan for Every Year

A Holiday Gift Card Promotions Plan for Every Year

Every holiday season offers your restaurant a golden opportunity to drive revenue and gain new loyal customers. This peak annual period has kept gift...

Read More
9 Restaurant Marketing Trends to Know and Capitalize On

9 Restaurant Marketing Trends to Know and Capitalize On

The difference between packed tables and empty seats often comes down to a few overlooked marketing channels. In 2025, staying ahead of the...

Read More
6 Spring Promotion Ideas for Restaurants and C-Stores

6 Spring Promotion Ideas for Restaurants and C-Stores

Spring is here, and so is your chance to become your customer’s go-to restaurant.

Read More
Understanding Comp Cards Vs. Gift Cards for Restaurants

Understanding Comp Cards Vs. Gift Cards for Restaurants

Getting new customers through the door and motivating previous ones to return (and ideally increase their order size) is the cornerstone of any...

Read More
Automated Gift Cards: What They Are and How to Use Them

Automated Gift Cards: What They Are and How to Use Them

Unless you've never used the Internet or services available through the Internet, you've probably used a gift card before. While these are convenient...

Read More
How to Sell Gift Cards: The Evergreen Guide for Restaurants

How to Sell Gift Cards: The Evergreen Guide for Restaurants

Learning how to sell gift cards effectively can prove a boon for your restaurant’s business. During your restaurant’s slow season and annual...

Read More