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Tax Information
Below you will find useful information on US Tax Law as it relates to employee achievement awards. Please note, however, that this summary is for general information only and should not be relied upon as tax advice. You should consult with your own accountant or tax advisor as to the application of these rules based on your particular facts and circumstances.
Employee Achievement Awards are items of tangible personal property that an employer gives to an employee for safety achievement or length of service. If certain requirements are met, these awards have advantageous tax results for both the employer and the employee.
The rules applicable to Employee Achievement Awards are generally set forth in Sections 74(c) and 274(j) of the Internal Revenue Code of 1986, as amended (the Code). The relevant law is summarized below.
Overview of Employee Achievement Awards
- An employer may deduct up to $400 per year for Employee Achievement Awards given to any employee under a non-qualified plan and up to $1,600 per year for Employee Achievement Awards given to any employee under a qualified plan.
- Employee Achievement Awards are items of tangible personal property given as part of a meaningful presentation recognizing an employees safety achievement or length of service, and cannot constitute disguised compensation.
Tangible Personal Property - Only awards of tangible personal property qualify as Employee Achievement Awards.
Meaningful Presentation - Employee Achievement Awards must be given as part of a meaningful presentation and not under circumstances that create a significant likelihood that the award is actually the payment of disguised compensation. While the presentation need not be elaborate, it must be a ceremonious observance emphasizing the recipient's achievement.
Qualified Plan Awards vs. Non-Qualified Plan Awards
- If Employee Achievement Awards are given pursuant to a Qualified Plan, the maximum amount that an employer may deduct for awards given to an employee increases from $400 to $1,600.
- A Qualified Plan Award is an Employee Achievement Award that:
- Is part of an established written plan or program of the employer; and
- Does not discriminate in favor of highly compensated employees as to eligibility or benefits.
- In order for an Employee Achievement Award program to be a Qualified Plan, the average cost of all Employee Achievement Awards for the year must be $400 or less.
- In determining the average cost of all Employee Achievement Awards, awards of nominal value are not taken into account.
Employee Achievement Awards present an opportunity for an employer to recognize its employee's safety achievements and length of service while also maximizing available tax benefits. For more information on this opportunity or with respect to other employee awards, consult your accountant or tax advisor.
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