John Bullis: Examining employee achievement awards
April 17, 2012
It’s great for an employee to receive an award that is not subject to income tax.
It’s also great for the employer to pay an award that is not subject to payroll taxes.
Certain, limited employee gift awards of tangible personal property qualify for those special tax rules.
An Employee Achievement Award can be given for either length of service or safety achievement. It must be presented at some “meaningful presentation.” It must be an item of tangible personal property. The cost to the employer for any one employee can not be greater than $400, and the cost does not exceed $1,600 annually to any employee.
It should be done in accordance with a written plan that does not discriminate.
The term “tangible personal property” does not include cash, gift certificates, tickets to events, stocks, bonds, securities or any other intangible property. Examples could be skis, tires, special food or drinks, clothing, sporting equipment, jewelry, electronic items, etc.
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It’s not wrong to ask the employee what would be a meaningful item, something they would really like to have, but hesitate to buy for themselves (or their family).
If the cost of the award is more than the allowable amount, the excess is taxable income. The amount to consider is the greater of the cost to the employer or the fair market value.
Length-of-service awards are not allowed during the employee’s first five years of employment. And they are not allowed if the employee has received a length-of-service award during the current year or any of the prior four years.
Safety achievement awards are not permitted if awarded to more than 10 percent of the total eligible employees, or if awarded to managers, administrators, clerical employees or other professional employees.
Many employers look for ways to encourage and reward employees for their good work. Maybe an Employee Achievement Award is worth the time and trouble of finding out what the qualified employee would value and enjoy.
Like other tax rules, this has limitations and requirements. But you can have fun with it. The recognition is a valuable help to encourage other employees also.
Did you hear: “If you’re too busy to laugh, you’re too busy, period.”
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.
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