Can PTOs Legally Give Gift Cards?

Can PTOs Legally Give Gift Cards?

In short, technically there isn’t a written rule against giving gift cards to teachers, even if your PTO is a 501c3.

But there are some issues with gift cards that should give you some pause about using them on the regular.

And one last note before we begin:

Please consult your tax attorney for the final word on this matter.

This information shouldn’t be relied on for legal advice.

Giving Gift Cards Creates a Taxable Event for Recipients

The first issue with giving gift cards to volunteers or teachers is that the IRS considers gift cards to be the same as cash.

And because of this, the gift card creates a taxable event for the recipient in the eyes of the IRS.

In other words, the value of the gift card counts as income that volunteers and teachers should declare when it’s tax time.

But, that’s an issue for them and not for your PTO.

Gift Cards are Hard to Track

Some PTOs give gift cards to teachers for their use as a classroom supply stipend.

However, there’s no accountability for how the gift cards are spent.

And gift cards are a potential opportunity for fraud.

A volunteer looking to fleece the PTO could purchase gift cards under the guise of a regular transaction, but use the gift cards for their personal use instead.

An Gift Card Alternative

Instead of giving gift cards to individual teachers, make an arrangement with your school.

Give an annual donation in the same amount you would’ve given to teachers in the form of gift cards.

But have the school administer the reimbursement process for the teachers.

Less work distributing the gift cards to teachers.

And no hassle of collecting receipts to prove proper use of the gift cards.

Win-win!

Volunteers Aren’t Employees

Now this last issue sounds obvious: volunteers aren’t employees.

But by the very definition, according to Merriam-Webster, a volunteer is:
“a person who voluntarily undertakes or expresses a willingness to undertake a service: such as one who renders a service or takes part in a transaction while having no legal concern or interest.”

So by this definition, a volunteer is someone who gets nothing in return for their service and dedication.

So does giving a gift card to a volunteer transform them into an employee?

Technically, the IRS could make that determination.

But as a practical matter, I’d take the bet that they’re not going to.

Moreover, not giving back to volunteers to thank them for their service is nutty and actually a horrible practice.

In fact, PTOs should be making volunteer recognition a regular part of their plans.

And take comfort in the fact that the IRS does have guidance on this point.

The IRS says that de minimus (in other words, minimal, like coffee and donuts at an event) compensation is ok.

But keep in mind that cash can never be considered de minimus.

An Audit Would Flag Gift Card Transactions

If you continue to give gift cards, a strict audit of PTO finances might get flagged as a potential issue should your organization ever get fully audited by the IRS.

The funds of PTO and PTAs with a 501c3 classification should only go towards the stated mission of the organization.

And that means supporting the children and school.

However, if you use a small portion of your annual budget for gift card tokens of appreciation you will be fine and not run afoul of federal and state regulations.

Bottom Line

Here are some bottom line recommendations going forward:

Minimize how many gift cards you give each year and keep the amount of the gift cards low, say $25 or so.

If you’re uncomfortable giving gift cards, look for other ways to recognize volunteers!

As a practical matter, as long as you’re not giving lavish gift cards on a regular basis, you’re unlikely to get into legal trouble.

And finally, use the vast majority of your budget not on gift cards items and you’ll be fine!

Watch this!

Recommended Reading

Need more advice about managing the finances of your PTO/PTA?

Read these posts:

Recommended Tools

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Posted in Finances and Money Management, PTO Officers and Leaders.

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