How to issue change / returns / refunds to Gift Cards: Error: Gift cards are not allowed for change or refund

Summary:

How to issue change / returns / refunds to Gift Cards 
Error attempting to issue change / refund / returns to Gift Cards
Error: Gift cards are not allowed for change or refund

Cause:

Known system limitation, by design.  The Gift Card pay code, by design,  is intended for future purchases, not to be used for something that is refunded to which is why this is a current limitation of this specific pay code.

Solution:

Use Store Credits for this process (create Gift Cards as Store Credits). 
In Setup / System / Gift Card Codes - select the option to create Gift Cards as Store Credit.  During the return/refund process, select the Store credit pay code to issue the return monies to a Gift card (existing card or create new). To redeem use Store credit pay code.