Employee Gifts Are Tax Free
There are only a few tax loopholes today that allow an employer a deduction which is tax free to employees. Medical health insurance is one such tax free employer supplied benefit. But there is one other which is overlooked by employers. It’s Employee Recognition Awards.
If structured correctly, worker achievement awards can present a tax deduction for the employer whereas remaining tax free to the employee. There are specific hurdles that must be overcome to ensure that the achievement award to be tax free. All of it begins with the institution of an Achievement Awards Program. Such a program could also be a qualified program or an unqualified program.
Qualified packages must fulfill the following requirements:
1. The plan should be in writing.
2. The Award cannot be paid similtaneously with annual salary reviews. It should be subsequent to an “achievement event” occurring.
3. It can’t be paid in money or money equivalents. It must be property, equivalent to golf clubs, televisions, vacations etc.
4. The Corporate Award can not exceed $1,600.
5. Plan can’t be discriminatory and favor extremely compensated individuals.
6. The average cost of all employee achievement awards granted during the year can’t exceed $400. Awards of nominal value are usually not included in the average. Nominal may be $50 or less.
7. Any employee recognition award with a price in extra of $1,600 must be included within the employee’s W-2 compensation.
8. The awards should be a part of a “meaningful presentation”, corresponding to an awards ceremony. The ceremony needn’t be lavish.
Nonqualified applications should satisfy the next necessities:
In the event you meet these requirements the award is exempt from earnings tax and social security tax. Please consult your accountant for complete details of the tax benifits for your business.
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