@pessosices, Thank you for your response! I am very grateful that the Gift Cards maintain the value loaded on them. That would be a customer service nightmare!

In this situation, I have the Gift Cards valued at the correct value (yay!) but recorded in the transaction at the discounted value by Square. I can't journalize the Gift Card liability at the discounted amount that was recorded in the transaction by Square because the liability is actually the full amount. So, I will have to do a manual adjustment whenever this happens.

Can I prevent a loyalty reward discount, in fact, all discounts, from being applied to Gift Cards issued?

@HeatherS - Absolutely!

Journaling Liability that way definitely makes things tougher!

In terms of preventing Discounts on Gift Cards - you cannot prevent ALL discounts from being applied to Gift Cards, but depending on the Rules of your Loyalty Reward Discounts, you can prevent those from being applied to Gift Cards.

I have my Loyalty Reward Discount set to $4 off Select Categories, and Gift Cards are not one of the categories selected. 

It also works if you have a Free Select Item or Free Item in a Select Category
What are the terms of your Loyalty Reward?