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Tax reform impacts employee achievement awards rules

employee achievement awards, tax reform, taxable incomeThe Tax Cuts and Jobs Act clarified the rules about the taxability of employee achievement awards as to what can be excluded from your employee’s income. The good news is that all gifts and awards to employees are deductible expenses for employers. Unfortunately, most of these gifts and awards are now taxable to employees.

The law clarifies that certain items are taxable compensation to the employee subject to both income tax and FICA :

  • Cash
  • Cash equivalents
  • Gift cards
  • Gift coupons
  • Most gift certificates
  • Tickets to theater or sporting events
  • Vacation
  • Meals and lodging

There are two exceptions:

  1. Non-cash gifts of minimal value are generally not taxable for employees if they are under $75 per year.
  2. Gifts awarded for length of service or safety achievement awards are not taxable to the employee, so long as the gift is tangible personal property. However, tangible personal property does not include cash, gift certificates, points redeemable for merchandise, vacations, meals, stocks or bonds or similar items. For qualifying gifts, the tax-free value is, however, limited to $1,600 for all awards to one employee in a year.

For more information on the biggest provisions in tax reform that may impact you or your business, click here.

Ron Greenfield, CPA