Did You Know Your Employee Service Award Program is Tax Deductible?
By Chad Goratowski
In a day and age where most companies are looking to reduce costs and cut expenses there is an area in employee recognition where companies still have a great tax advantage with Safety and Years of Service Employee Achievement Programs.
Per IRS guidelines: A employer may deduct the cost of achievement awards given to the same employee up to $400 in any year. If the incentive awards are awarded as part of one or more established written plans or programs of the employer, the $400 deduction limitation is increased to $1,600 per employee. This means that if your company establishes a formal safety or years of service program, the company can award up to $1,600 for an individual employee but no more than $400 per employee for all employees. Please note new guidelines for service awards of less than 5 years and certain dollar amounts may not qualify.
An “employee achievement award” is defined in the Internal Revenue Code (IRC) as an item of “tangible personal property” transferred by an employer to an employee for safety, achievement or for length of service. More over the award must be given as part of a meaningful presentation and cannot be disguised as compensation to the employee.
There is a common belief that gift certificates and debit card rewards do not have to be taxed since they are not cash. They are in fact taxable. Here is the IRS summary of what the tax code section says:
“An incentive award cannot be in the form of cash or a gift certificate (other than a non-negotiable certificate conferring only the right to receive personal tangible property). Any certificate that may be converted to cash is not “tangible personal property” and cannot qualify for preferential tax treatment.”
So, when your management team asks your HR department "how much is this service award program going to cost our company?" - you can pleasantly reply "it's tax deductible."
Nice to know the IRS still thinks it is very important to recognize and reward employees and provide employers with great tax benefits.
Royal Recognition has been providing employee service award programs and safety programs since 1983 to over 1500+ corporate clients worldwide. Please contact us at sales@royalrec.com or visit us at www.royalrec.com.
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