Employee Achievement Award
Employers who recognize their employees’ achievements through a qualified employee achievement award program may be able to take a tax deduction.
Commonly referred to as qualified plan award, employee award program, employee achievement award program, employee recognition award, years of service award and employee engagement award.
Do I Qualify for an Employee Achievement Award?
Awards given by employers to employees, whether paid in cash or property, are generally deductible to the employer and considered taxable income to the employee. But certain gifts of tangible personal property may qualify for exclusion from the employee’s income while still being deductible for the employer.
2022 Employee Achievement Award Details
In general, awards given by employers to employees, whether paid in cash or property, are deductible to the employer. In most cases, the value of the award will be taxable income to the employee, but certain gifts of tangible personal property can be excluded from their income.
Tangible personal property refers to items that can be physically moved, such as computers, cell phones, furniture or office equipment. If a gift of tangible personal property is given to an employee as part of the company’s employee award program, it may qualify for exclusion from their income.
Individual awards valued at up to $400 may qualify for the income exclusion. In the case of employees who receive multiple awards, the maximum total value that can be excluded in a year is $1,600. However, the average cost of all awards must be at or below $400 per employee to qualify. Owner-employees of S corporations do not qualify for the exclusion.
Employees can still qualify for the exclusion if they choose their award. Awards of cash, gift cards, vacations, meals, lodging or tickets to events do not qualify for the exclusion.
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Benefits
• Low cost to the business, but highly valued by employees.
• Reduction in taxable income and self-employment taxes to owners.
• Tax-free income to employees
Considerations
• Plan document must be created and maintained
Assumptions When Taking the Employee Achievement Award
• There is a written plan outlining the rules and requirements for the employee achievement award program.
Conflicting Strategies
• None noted.
Requirements to Claim the Employee Achievement Award
• The award must adhere to the written plan document that outlines the rules and requirements of qualifying.
• All employees must be eligible (except for S corporation owner-employees).
• Awards must be tangible personal property, not cash or cash equivalents.
• Awards must not exceed an average of $400 per employee per taxable year.
Business Entities That Can Claim the Employee Achievement Award
• Schedule C
• Schedule F
• S Corporation
• C Corporation
• Partnership
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.