Restaurant Gift Card Program: POS Setup, Costs and the 5-Year Rule

On this page 8 sections

1. Sell Cards Where Your Guests Already Pay
2. What Your POS Needs to Run a Restaurant Gift Card Program
3. Price the Program at Your Own Volume
4. Lock Down Online Sales Before Card Testers Find Them
5. The 5-Year Rule and the States That Go Further
6. Follow One $100 Gift Card From Sale to the Last $4
7. Unredeemed Balances Can Become the State's Money
8. Time Bonus Promotions for Your Slow Season

Key takeaways

• Gift card expiration and fee limits come from federal and state law, not from Visa or Mastercard. If you never expire funds or charge fees, and print that on the card, you avoid most state expiration and fee limits. Cash-back and disclosure rules still vary by state.
• You pay normal processing fees when a guest buys a gift card. Months later, when the card pays a tip, that tip comes out of your own cash.
• Compare gift card platforms by counting activations plus redemptions, not cards sold. In the illustrative example, a $25 + $0.25 plan beats a $60 flat plan only below 140 transactions a month.
• A bonus card can expire only if the front says it's promotional and shows the expiration date, and the card also lists fee information and a toll-free number.

A restaurant gift card program pays off when you settle four things before the first card sells: where you'll sell cards, whether your POS can activate and redeem them (tips included), what the program costs at your volume, and which expiration, fee and cash-back rules apply where you operate. Federal law sets the minimum. Money on a purchased gift card can't expire for at least five years, and you can't charge an inactivity fee until a card has gone 12 months without use. Several states go further, and since April 1, 2026, California has required cash back on balances under $15.

Gift cards bring in money before the kitchen cooks anything. They also put a liability on your books that stays there until each card is spent, cashed out or reported to the state. The accounting and the law need as much attention as the marketing.

Sell Cards Where Your Guests Already Pay

Physical cards sell at the host stand and the bar, mostly to guests who just had a good meal and want to pass it on, and they move fast in December as stocking stuffers. Digital cards sell from your website or online ordering page and arrive by email or text. The typical buyer is shopping late for a birthday, Mother's Day or a client thank-you and won't drive over to pick up a plastic card.

Most restaurants end up offering both. If you can launch only one, follow your traffic. A neighborhood bistro with a busy host stand will sell plastic. A restaurant that already takes a large share of orders through its own website should start with digital.

What Your POS Needs to Run a Restaurant Gift Card Program

If the program runs outside the POS, servers have to look up balances on a separate website and key redemptions in by hand. Then your bookkeeper has to reconcile two systems that never match. With an integrated program, you sell, activate, check and redeem cards on the same screen that closes the check. Before you sign, confirm the system can do each of these:

• Activation at sale. Cards carry no value until they're paid for, so stolen blank stock is worthless.
• Split tender and partial redemption, so a guest can apply the card balance and put the rest on a credit card or cash.
• One balance across channels, so a card bought on your website works at the table, and at every location if you run more than one.
• Liability reports showing outstanding balances, redemptions, and each card's sale date and last activity. Your bookkeeper needs the totals monthly, and the dates matter for unclaimed property (covered below).
• A separate tender type for gift card tips, explained in the next section.
• Cash payouts against a balance, recorded as a gift card transaction, for states with cash-back laws.
• Offline behavior. Balances usually live in the cloud, so ask whether redemptions still work when the connection drops and what servers should do if they don't.

If your POS adds features through separate apps, ask whether gift cards are built in or sold as an add-on with its own monthly subscription. The answer affects your monthly cost and whether your reports match. Our restaurant POS buyer's checklist covers gift cards and the other features that matter. You can compare hardware on MannyPay's POS systems page.

Gift Card Tips Come Out of Your Cash

When a guest pays the tip from a gift card balance, no card deposit comes in for that tip. The server still earned it, so you pay it from your own funds through payroll or your tip-out process. That money came in weeks or months earlier, when the card sold. Code gift card tips as their own tender type so tip reports and payroll stay accurate, just as you would for credit card tip adjustments. State wage laws govern how and when tips are paid out, so confirm your process with a payroll professional.

Price the Program at Your Own Volume

Gift card providers bundle their fees differently, so the advertised price rarely matches the bill. Get every line below in writing.

Owners often miss the last row. You pay your normal processing rate on the credit or debit card a guest uses to buy a gift card. Redemption carries no Visa or Mastercard fee because no card network is involved: your own gift card, which only works at your restaurant, pays the check. The gift card platform may still charge its own redemption fee. Our breakdown of restaurant credit card processing fees explains the processing side.

A low monthly fee can hide expensive per-transaction charges, and the reverse happens too. Take two made-up quotes (illustrative numbers, not any real provider's prices). Provider A charges $25 a month plus $0.25 per activation or redemption. Provider B charges a flat $60 a month. At 100 gift card transactions a month, A costs $50 and B costs $60.

At 300 transactions, A costs $100 and B still costs $60. They break even at 140 transactions a month ($35 of extra monthly fee divided by $0.25). Count activations and redemptions, not just cards sold, because one card can be redeemed over three or four visits. Before signing, ask about contract length, cancellation terms, and who keeps the cardholder data and outstanding balances if you switch providers.

Lock Down Online Sales Before Card Testers Find Them

Put the "Gift Cards" button next to "Order Online" and "Reservations" on your own site instead of sending buyers to a third-party page. If you already run commission-free online ordering, gift cards fit into the same checkout.

Criminals use digital gift cards to test stolen card numbers, because the card arrives instantly and resells easily. The fraud shows up weeks later as a chargeback, after the gift card has already paid for someone's dinner. Set up these controls on day one:

1. Cap the value per card and the number of cards per order.
2. Flag velocity, meaning many purchases from one email, device or IP address in a short window.
3. Hold delivery on large or rushed orders until a manager reviews them.
4. Turn on 3-D Secure authentication for online card payments if your gateway supports it.
5. Record the purchaser, recipient, IP address and delivery confirmation for every order, in case of a dispute.

Our guide to restaurant chargebacks and delivery disputes covers how to respond to disputes. For gateway options on web sales, see MannyPay's online payment processing page.

The 5-Year Rule and the States That Go Further

Gift card expiration and fee limits come from law, not card network rules. Visa and Mastercard play no part in a restaurant's own gift card. The federal rules come from the Credit CARD Act of 2009, which Regulation E puts into effect at 12 CFR 1005.20. The Federal Reserve published the final rule in the Federal Register on April 1, 2010. For a store gift card a customer pays for:

• Funds can't expire sooner than five years after the card was issued or last loaded.
• Dormancy, inactivity and service fees are allowed only after 12 months with no activity, no more than one in any calendar month, and only if they're disclosed on the card and before purchase.
• The card itself can expire before the money does, but the cardholder must be able to get a replacement. You can't charge for it unless the card was lost or stolen.

States add their own rules on top of the federal minimum. A state-by-state compilation from OpenClassActions counts 38 states with their own rules. California, Florida and Washington ban expiration dates outright. Hawaii and Virginia ban dormancy and service fees. Fourteen states require cash back on small leftover balances, from under $1 in Rhode Island and Vermont to under $15 in California.

Maine is one of the strictest. Under 33 M.R.S. § 2067, a gift card never expires, and the only fee allowed is a disclosed fee when the card is first issued. If less than $5 remains after an in-person redemption, you must pay it out in cash when the guest asks. Cards with a starting value of $5 or less are excluded.

For a restaurant, a dormancy fee earns little, and guests read it as a penalty. If you never expire funds or charge fees, and print that on purchased cards, you avoid most state expiration and fee limits. The printed words don't do the work by themselves, though. Your platform also has to be set so balances never lapse and no fee is ever charged. Cash-back, disclosure and unclaimed property rules still vary, so check each state where you sell or redeem cards.

California Now Cashes Out Balances Under $15

Senate Bill 22 amended California Civil Code Section 1749.5. Since April 1, 2026, a gift card with a balance under $15 must be redeemed in cash when the holder asks. Before that, California's threshold had been under $10 since 2008, according to Norton Rose Fulbright. A Morgan Lewis analysis of SB 22 notes that the amended law expressly covers electronic gift cards, so your e-gift program needs a cash-out option too.

Cards already printed with the old $10 language got some relief. Arent Fox Schiff reports that a follow-up bill, SB 1078, created a temporary safe harbor for physical cards made or printed before April 1, 2026, that still show the $10 threshold. Have your lawyer confirm whether your leftover stock qualifies. California restaurants should also:

• Retrain servers and hosts on the new $15 rule.
• Keep enough cash on hand for payouts.
• Confirm the POS can record a cash payout against a gift card balance.

Bonus Cards Can Expire Only If the Card Says So

Owners often assume a free bonus card either follows the same five-year rule or can expire whenever the restaurant likes. Neither is quite right. Regulation E exempts loyalty, award and promotional cards from the expiration and fee limits only when the card carries specific disclosures. Under 12 CFR 1005.20, the front of the card must say it was issued for loyalty, award or promotional purposes and must show when the funds expire. The same regulation also requires the card to list fee information and a toll-free number (plus a website, if you maintain one) where the holder can get fee information. The FDIC's Regulation E examination guidance summarizes these conditions.

A bonus card printed without those disclosures loses the exemption and is treated like any purchased gift card. The simplest setup is a separate, clearly labeled bonus card, rather than extra value loaded onto the guest's paid card. State rules on promotional cards differ, so check yours too.

This section is general information, not legal advice. Confirm your obligations with an attorney who knows gift card and consumer protection law in your state.

Follow One $100 Gift Card From Sale to the Last $4

This illustrative example shows where the money goes. The assumptions:

• A guest buys a $100 card at the host stand on December 12 with a credit card.
• Processing costs 2.9% all-in (your rate will differ).
• The gift card platform charges nothing per transaction.
• Sales tax is left out to keep the arithmetic simple.

1. December 12, the sale. A net deposit of $97.10 arrives. The books show a $100 gift card liability, $2.90 of processing expense and $0 of food and beverage revenue. Until the card is used, the sale counts as deferred revenue (money received but not yet earned).
2. February 6, the redemption. The recipient's check comes to $80, and they add a $16 tip, all paid from the card. The liability drops by $96, revenue rises by $80, and you owe the server $16 through payroll. No deposit arrives that day.
3. The $4 left over. It stays on the books as a liability. In California, the guest could ask for it in cash, because $4 is under $15. In Maine, the guest could get cash for it after an in-person redemption, because $4 is under $5.
4. If the $4 is never spent. Accounting standards generally let you record breakage (gift card value you expect never to be used) as income gradually, in step with redemptions of other cards and based on your own history, rather than all at once. Depending on your state, you might instead have to report the balance to the state as unclaimed property.

The cash arrived in December. The food cost and the $16 tip came in February. If you spend December gift card sales on December bills, the slow weeks after the holidays will have costs with no matching deposits. Treat outstanding balances as money you owe and include them in a 13-week cash flow forecast.

Taxes run on their own schedule. Federal income tax rules let many businesses defer part of their gift card income instead of reporting all of it in the year of sale. Sales tax is generally charged when the card buys food and drink, not when the card is sold. Our guide to restaurant sales tax on takeout and to-go orders covers related rules. Confirm both with your CPA.

Unredeemed Balances Can Become the State's Money

Some states treat unredeemed gift card balances as unclaimed property. That means you report the value and send it to the state after a set period without activity. Other states exempt gift cards fully or partly. Maine shows how the details work. Its law treats a gift card as abandoned after two years, unless the seller sold no more than $250,000 in face value of gift cards in the past calendar year. The law also combines sales by certain related businesses, so a restaurant group with several locations should check whether its sales count as one.

Which state gets the money follows priority rules that trace back to the Supreme Court's 1965 decision in Texas v. New Jersey, as the Unclaimed Property Professionals Organization explains. Generally, the state of the purchaser's last known address, as shown in your records, has first claim. If you have no address, the state where your business is incorporated or organized usually does. That's not every state where you're registered to do business. Baker Tilly's guide to gift card escheatment notes that most holders don't track addresses for gift cards, so unclaimed balances end up going to the state of formation. A restaurant that never collects buyer addresses can get a different answer than one that does.

Keep each card's sale date and last activity in your gift card reports. Reconcile the gift card liability monthly along with your deposits, using the routine in our guide to matching deposits to sales every month. Then ask your CPA in writing which states, if any, expect a report from you.

Time Bonus Promotions for Your Slow Season

Restaurant gift card sales peak in the weeks before the December holidays. Smaller peaks come around Valentine's Day, Mother's Day, Father's Day and graduation season. Corporate buyers ordering gifts for clients and staff are easy to overlook, so offer a bulk order form and a named contact for invoicing.

The usual promotion is the bonus card: buy $50 in gift cards, get a $10 bonus card. Make the bonus valid only in your slowest stretch (for many restaurants, mid-January through March). Print that window and the promotional disclosures on the card, and limit use to one bonus card per table. Then compare traffic from redemptions and the average check during the window against the same weeks last year. Our guide to running bonus gift card promotions profitably works through the margin math.

Your next step is one call to your current POS provider. Ask about the seven features listed above, and request its gift card fee schedule in writing. If the answers point to a bigger POS or processing change, see how MannyPay handles restaurant and bar payment processing or request a free processing quote. A MannyPay specialist responds within one business day.

Sources

1. § 1005.20 Requirements for Gift Cards and Gift Certificates (CFPB, Regulation E)
2. 12 CFR 1005.20, Requirements for Gift Cards and Gift Certificates (eCFR)
3. 12 CFR 1005.20 (2012 Code of Federal Regulations, GovInfo)
4. Electronic Fund Transfers, Final Rule (Federal Register, April 1, 2010)
5. Laws and Regulations: EFTA, Regulation E Examination Guidance (FDIC)
6. What You Should Know About Gift Cards (FDIC)
7. Gift Card Laws by State: Expiration Dates, Fees and Cash Back (OpenClassActions)
8. Title 33, §2067: When Gift Obligation Presumed Abandoned (Maine Legislature)
9. California Raises Gift Card Cash-Out Threshold to $15 (Morgan Lewis)
10. California Raises Gift Card Cash-Out Limit to US$15 (Norton Rose Fulbright)
11. California Provides Some Transitional Relief for Gift Card Cash-Out Compliance (Arent Fox Schiff)
12. 6 Keys to Understanding Gift Card Escheatment (Baker Tilly)
13. Unclaimed Property Focus: Priority Rules (Unclaimed Property Professionals Organization)

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About the author

Isabella Cruz

Isabella Cruz is Business Growth & Commerce Editor for Beyond the Swipe, writing for small businesses, restaurants, retailers, entertainment venues and e-commerce sellers.

This article is for general educational purposes and is not legal, tax or financial advice. Card network rules and state laws change; confirm current requirements for your business.