Do I have to pay tax on employee achievement awards?

You can exclude from taxable income on your tax return employee achievement awards you receive only if your employer can deduct the employee achievement awards on it's tax return. To be tax deductible by your employer on it's tax return, and excluded from your tax return, the employee achievement awards must meet ALL the following IRS requirements:

	Be given for length of service after a minimum of five years of service, or for safety achievement. Only one length of service award can be given every five years.;
	Be tangible personal property, other than cash, gift certificates or equivalent items;
	Be given under conditions and circumstances that do not create a significant likelihood of the payment being disguised compensation;
	Be given as part of a meaningful presentation;
	Be no more than the specified dollar limits.

There are two types of employee achievement award plans, tax qualified and non tax qualified. A tax qualified employee achievement award plan is an established written plan that does not discriminate or favor highly compensated employees. A tax qualified employee achievement award plan can deduct up to $1,600 for all employee achievement awards to the same employee on it's tax return during a taxable year. The average cost of all employee achievement awards during the tax year for all employees cannot exceed $400.

For a non tax qualified employee achievement award plans the tax deduction limit on the employer's tax return is $400 for each employee.

Related tax information about employee achievement awards

Tax Directory Topics:
Bonuses and Awards
Income Related Questions and Answers

IRS publications about employee achievement awards:
For more tax information about employee achievement awards refer to IRS Publication 525,

Taxable and Nontaxable Income. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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