Encourage Your Workers Tax Free
There are only a few tax loopholes these days that permit an employer a deduction which is tax free to employees. Health insurance is one such tax free employer provided benefit. However there may be another which is overlooked by employers. It’s Employee Recognition Awards.
If structured correctly, employee achievement awards can provide a tax deduction for the employer while remaining tax free to the employee. There are particular hurdles that should be overcome in order for the achievement award to be tax free. It all begins with the institution of an Achievement Awards Program. Such a program could also be a professional program or an unqualified program.
Certified applications should satisfy the following requirements:
1. The plan have to be in writing.
2. The Award can’t be paid at the same time as annual wage reviews. It have to be subsequent to an “achievement event” occurring.
3. It can’t be paid in cash or money equivalents. It must be property, similar to golf golf equipment, televisions, vacations etc.
4. The Corporate Award cannot exceed $1,600.
5. Plan can’t be discriminatory and favor highly compensated individuals.
6. The average cost of all employee achievement awards granted through the yr can’t exceed $400. Awards of nominal value will not be included within the average. Nominal may be $50 or less.
7. Any employee recognition award with a worth in excess of $1,600 should be included within the employee’s W-2 compensation.
8. The awards must be part of a “meaningful presentation”, corresponding to an awards ceremony. The ceremony need not be lavish.
Nonqualified programs should fulfill the following requirements:
For those who meet these requirements the award is exempt from earnings tax and social safety tax. Please consult your accountant for complete details of the tax benifits for your business.
