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How to distinguish gift from payment for the service?
All of this assumes that this relationship isn't as employer-employee relationship, which would require you to withhold taxes. If you send them a small token of appreciation, and you are unable to record it as a business expense, or some other deductible expense, you don't have to be concerned about how they claim it. They decide if they want to risk claiming it was a gift, or if they want to record it as an expense. Even if you say some magic phrase that you think will impress the IRS, the recipient can still decide declare it as income. To have any hope of being able to treat it as a gift they would have to be able to demonstrate that there is a non-business relationship.  If you can claim it as a business expense, or a deductible expense,  they will have to also claim it as income; because your documentation could point the IRS to their lack of documentation.  Giving them a check or sending the payment electronically will require them to claim it as an income, since an audit could require them to explain every line on their bank statements.