This guide explores WooCommerce gift card tax settings to clarify how taxes apply when using gift cards.
Should gift cards be applied before or after tax calculation?
The decision to apply gift cards before or after tax can influence how customers perceive their checkout experience. To better understand this, let’s dive into WooCommerce gift card tax settings.
Key Takeaways
- The apply before tax setting calculates tax on the balance subtotal after subtracting the gift card amount.
- The apply after tax setting calculates tax on the full subtotal, and the gift card is applied afterward.
- WooCommerce gift card tax settings can impact customer experiences.
Consider this example: A customer purchases a product worth $100 using a $20 gift card. Should the tax apply to the entire $100 subtotal or just the remaining $80 balance after applying the gift card?
The WooCommerce Gift Card plugin by WebToffee offers two options for handling tax calculations: apply the gift card before tax or apply the gift card after calculating the WooCommerce gift card tax. Sounds confusing? Let’s break it down for you.
If you, as a store owner, set the WooCommerce gift card tax option to “Apply before tax,” the tax is calculated on the remaining balance after the gift card use. If a customer purchases a product worth $100 using a $20 gift card, the tax will be applied to the remaining $80 only. As the name suggests, the gift card is applied before tax.
Likewise, if the store owner sets the WooCommerce gift card tax option to “Apply after tax,” the customer will be taxed on the full subtotal. That is, if the subtotal is $100 and the tax rate is 10%, the tax will be calculated first, resulting in a $10 tax. The gift card is then applied after the tax, making the cost breakdown look like this: ($100 + $10) – $20 = $90.
| WooCommerce Gift Card Tax Setting | How it works? | Benefit for Customers |
| Apply Before Tax | Tax is calculated after gift cards | Customers save on tax |
| Apply After Tax | Tax is calculated before gift cards | Customers can use gift cards to pay for purchases, shipping and taxes |
These are the two options available in WooCommerce gift card tax settings. How do they impact the customer experience and the store owners? Let’s find out.
Use case: Under the latest EU VAT regulations, store owners must apply taxes to gift cards or gift certificates just like any other product on their WooCommerce store. This means customers should pay taxes when purchasing gift cards from an online store.
However, complications arise when customers use these gift cards to pay for products. By default, WooCommerce calculates taxes on the subtotal, meaning taxes are applied to the full product price even when a gift card is used. This results in customers paying tax twice in a single transaction.
This is where the “Apply before tax” WooCommerce gift card tax setting shines bright. With this setting, store owners can calculate taxes after applying the gift card. As a result, customers only pay tax on the balance after the gift card use.
How to Set Up “Apply Before Tax” in WooCommerce?
The option to choose the WooCommerce gift card tax setting is available only in the premium WooCommerce Gift Cards plugin from WebToffee. To get started, you must first install and activate the gift card plugin. Once activated, follow these steps:
- Go to Gift Cards > General Settings to configure the WooCommerce gift card tax settings.
- In the General tab, scroll down to the Gift card usage settings section.
- Select the Apply before tax option.
Now, all gift card products created on your WooCommerce store will apply the gift card value first before tax is calculated.
How does this benefit customers?
For starters, it ensures customers don’t pay tax twice when shopping in regions like the EU. For example, if a customer uses a $50 gift card on a $200 purchase, applying the gift card before tax means they’ll only pay tax on the $150 balance, making them feel like they’re saving even more!
I hope this is clear. Next, let’s examine the other WooCommerce gift card tax setting: Apply after tax.
Use case: In most regions, gift card sales are not taxable. Sales tax is only applied when the gift card is redeemed to purchase products.
To maintain tax compliance, select the “Apply after tax” option. This WooCommerce gift card tax setting is also ideal for store owners who want customers to use their gift card balance to cover taxes, shipping, and other charges alongside the subtotal.
How to Set Up “Apply After Tax” in WooCommerce?
Follow the initial steps for configuring WooCommerce gift card tax settings as discussed earlier. Instead of selecting “Apply before tax,” choose “Apply after tax” in the Gift card application settings.
- Go to Gift Cards > General Settings to configure the WooCommerce gift card tax settings.
- In the General tab, scroll down to Gift card usage settings.
- Select the Apply after tax option.
- Enable the Apply on tax, shipping, and other charges option. What this option does is allow the gift card to cover tax, shipping and other charges with the remaining amount on the gift card.
Now, for all gift card products in your WooCommerce store, taxes are calculated first before applying the gift card balance. The tax will be on the subtotal and customers can use their gift card balance to cover the total cost, including tax, shipping, and other charges.
How does it benefit customers?
The WooCommerce gift card apply after tax setting enhances payment flexibility, ensures tax compliance, and improves the checkout experience for customers. And for store owners, it helps maintain compliance with tax regulations while minimizing cart abandonment through flexible gift card application option.
More on WooCommerce Gift Card Plugin
We’ve explored the WooCommerce gift card tax settings, but there’s much more to it. Beyond this tax feature, the WooCommerce Gift Card plugin offers an all-in-one gift card solution for store owners.
- Create and sell unlimited gift card products
- Schedule gift card delivery
- Offer physical gift cards
- Instant refunds to store credits
- Manage user credit balances
- Set fixed or custom gift card amounts
- Set usage restrictions for gift cards
The basic version of the WooCommerce Gift Card plugin is available in the WordPress repository. Do try it out before upgrading to the premium version. However, if you require WooCommerce gift card tax settings, you’ll need to purchase WebToffee’s premium WooCommerce Gift Cards plugin. Don’t worry, we offer a 30-day money-back guarantee.
Wrapping Up
That’s a wrap, folks! I hope you found this article on WooCommerce gift card tax both insightful and easy to follow.
So, the question remains: Do you want to maximize savings for your customers or let them use gift cards for taxes and shipping as well?
Both options serve different purposes based on tax regulations. Choose the one that best aligns with your regional tax rules.
Generally, you do not have to pay tax when purchasing a gift card, except in regions like the EU. However, sales tax is applied when the gift card is used to buy products. The tax is calculated based on the total purchase amount.
In most cases, gift cards are not taxed at the time of purchase. However, when the gift card is redeemed, it is subjected to sales tax, which depends on local tax laws and the type of products purchased.
Yes, with WebToffee’s Gift Card plugin, you can enable the “gift card after tax” setting. This allows gift cards to be applied not only to purchases but also to taxes and shipping charges, making gift cards a reliable payment method.
