Tax Free Employee Awards
Employees love recognition and love receiving benefits – especially those that are tax-free.
Employee Achievement Awards are tax free to employees and thus employers save as they don't pay payroll taxes on this benefit.
An employee achievement award is an item of tangible personal property (so cash and gift certificates don’t count) awarded to an employee because of length of service achievement, or safety achievement.
Employee achievement awards are excludable from income only to the extent the employer can deduct the cost of the award—generally limited to $400 for any one employee, or $1,600 for a “qualified plan award.”
A qualified plan award is an item awarded as part of a permanent, written, nondiscriminatory plan of the employer. A length-of-service award won't qualify for deduction under these rules if given during an employee's first five years of employment, or if a length-of-service award was given to the same employee during the same year or any of the earlier four years.
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