Taxes -- Taxes -- Taxes--How to Save!

Employee Achievement Awards

Exclude from your employees income achievement awards if you qualify to deduct them. To be deducted as an employer and excluded for your employees, the award must meet all of the following requirement:

1. Be given for length of service or safety achievement
2. Be tangible personal property other than cash, gift certificates, or equivalent items
3. Be given under conditions and circumstances that do not create a significant likelihood of the payment of disguised compensation
4. Be given as part of a meaningful presentation
5. Be no more than the specified dollar limits

Qualified Plan Award

A qualified plan award is one you are awarded as part of an established written plan by your employer that does not discriminate in favor of highly compensated employees. An award will not be considered a qualified plan award if the average cost of all employee achievement awards given by your employer during the tax year is more than $400. In determining average cost, awards of nominal value are not taken into account.

Dollar Limits

There are limits to the total awards you can exclude in one year. Awards from nonqualified plans are limited to $400, and total awards from both qualified and nonqualified plans are limited to $1,600. The cost to your employer is the determining factor for these limits. Amounts over the limits cannot be deducted by your employer and must be included in your income.

Example

Ben Green received 3 employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and 2 qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. However, since the $1,750 total value of the awards is more that $1,600, Ben must include $150 ($1,750-$1,600) in his income.