What Happens to Unused Gift Certificates?
A practical overview of breakage, unclaimed property reporting, and how to handle long-dormant certificates.
Unused gift certificates create two issues for SMBs: revenue recognition and state unclaimed property reporting. Here's a practical overview, not legal or tax advice.
Breakage
Breakage is the industry term for the portion of gift card value that is never redeemed. Some portion of breakage may eventually be recognized as revenue under accounting standards once redemption is remote. Consult a CPA.
State unclaimed property
Many states require businesses to remit some portion of long-dormant gift card balances to the state under unclaimed property (escheat) law. The dormancy period varies by state.
Operational recommendation
Keep clean records of every issued certificate and its redemption status. Consult a CPA and an attorney annually to confirm your reporting obligations.
Related legal basics
- Gift Certificate Terms and Conditions: What to Include — An eight-clause framework for compliant gift certificate terms.
- State-by-State Gift Card Rules: Research Starting Point — A neutral overview of how to research your specific state's gift card rules — with caveats.
Frequently asked questions
How long do I need to keep gift certificate records?
Most CPAs recommend keeping records for at least 5–7 years, depending on your state's unclaimed property dormancy period.