John Bullis: Non taxable employee achievement awards
If an employee receives tangible personal property such as skis, tires, clocks, television sets, radios, clothing, etc. and the value is not more than $400, then it can be tax free if it qualifies as an employee achievement award.
That is tax free of income, Social Security, Medicare and unemployment taxes for both the employee and the employer.
The award can not be cash, gift certificates, vacations, meals, lodging, tickets to events, stocks, bonds or other securities.
It must not discriminate in favor of highly compensated employees and an established written plan or program is required.
It must be presented to the employee as part of a meaningful presentation (like a celebration party) and must not be disguised compensation.
The award must be given to the employee for either length of service or safety achievement. But a length of service award will not qualify if it is received during the employee’s first five years of service.
An award will not be considered to be a safety achievement award if it is made to a manager, administrator, clerical employee, or other professional employee. It will not be a qualified safety achievement award if during the tax year, awards for safety achievement were previously made to more than 10 per cent of the employees, excluding managers, administrators, clerical employees, or other professional employees.
Of course there are other rules, but that covers it, except in certain cases the award can be as much as $1,600. The annual awards to all employees can not average more than $400 each. So, for Joe or Mary to receive $1,600 of tangible personal property, some eligible employees will receive less than $400, or maybe nothing at all to meet that rule.
The main idea is to recognize good work and length of service. I don’t expect a lot of safety achievement awards will be given.
It might be good to talk with the employee that is going to get an award to find out what would be something they really want and can use. If you are listening to your employees, you may have some good ideas of tangible personal property to consider awarding.
The amount of the award might not be the main thing to the employee. A written note that thanks them for their good work will be saved as a valuable item. I remember a 62-year-old boss who said, “I got notes thanking me for my good work and I’ve saved both of them.”
Did you hear? “Most of us, swimming against the tides of trouble the world knows nothing about, need only a bit of praise or encouragement — and we will make the goal,” by Jerome Fleishman.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.