How does the money work with Gift Cards?

[popculturetn]

I can not find information on charges relating to gift cards and the transaction details. I have run a gift card purchase of $20.00 ans see that transaction gets a 2.75% fee*. That money then gets deposited into my bank account.

What happens when the customer uses the card? If they charge $15 using the gift card then what happens? Does it also gets a 2.75% fee*? If that is so then I would end up getting a total of 5.5% total fees which would be considered a hidden fee since it would be a double charge. Does the money then get withdrawn from my bank account?

How is the ccounting suppose to handled for this for tax purposes as well?  I am not suppose to charge taxes on loading a gift card but I had money transfered to my account.  Do I just not rport that money as income like it is somewhere in limbo?

Note: As of 2019 Square's card-present fee is 2.6% + 10c per transction. For more information visit our Support Center.

[jjgard]

I'm not able to speak with any authority on the tax angle.  We report to our bookkeeper the amount of gift cards we sell and the amount redeemed each day.  There's a running balance on our monthly financials that reflects that obligation...since the money comes in when the gift card is purchased but isn't allocated to any income category until the card is redeemed.  

As for the fees, there are no transaction fees when the gift card is redeemed through Square.  It's a gift card, not a credit card.  

[Russell]

Hey there @popculturetn - @jjgard is right, there is no fee charged on gift card transactions. We do charge a fee on credit card processing, which is why you saw a fee deducted from sale of the gift card. 

Please let us know if you need more help with this. 

[VanKalkerFarms]

What's really nice is you get the cash or credit card deposit for the gift card sometimes months in advance of you actually selling anything.  I really love in the months leading up to mother's day that we end up with a couple thousand dollars of purchased yet unredeemed cards.

As has been stated, you are only charged a credit card fee to load the Gift Card initially (free to load with cash or check payment) and then there are no fees when the card is redeemed.

[manuellam7]

Thanks!  This is super helpful.  If I'm hearing this correctly...

If you are buying the gift cards with credit card, there is the processing fee charge, BUT if the gift card is redeemed, there is no processing charge because we are using a gift card. 

Is this the same with e-gift cards? i.e. the fee is charged only once?

I think this may be a solution to buying packages.  If you want 6 visits to a place for services... they can buy 6 service visits up front and redeem through the card.   

[pessosices]

Correct! This is the same for a Plastic Gift Card as with an eGift Card! And with the eGift Card, there is no initial cost of the cards themselves. It's pretty sweet.

Definitely a great idea for packages! Just keep in mind that the Gift Cards have to be in Dollar Amounts rather than Visit/Item Credit, and if you happen to change your prices or if they add more services/items in a visit, it might get a little misleading - but as long as you phrase it the right way, it's all good!

[pessosices]

[Note (2019): Square's per transaction fee for card payments that are dipped, tapped or swiped is 2.6% + 10¢. Learn more in our Support Center.]

@popculturetn

To the Taxes issue- It can depend by state, and of course check with your bookeeper/accountant/tax professional-

Generally: Gift Cards are not taxed or taxable, but when the Customer actually purchases taxable goods or services, the tax is part of the money Redeemed from the Gift Card 

Example:
Customer buys $20 gift card, gives you $20, Square takes the 2.75% fee*

Customer buys $15 of product, plus example 10% tax = $16.50 - uses that Gift Card and has $3.50 left

Hope that helps!