Tax Guidelines & IRS Compliance

Achievement Award Programs and IRS Compliance

There is a good amount of confusion in the marketplace regarding this topic. Here is some information that can help you make the most informed decisions regarding your achievement award programs.

Achievement Awards.

An achievement award is an item of tangible personal property that meets all the following requirements.

  • It is given to an employee for length of service or safety achievement.
  • It is awarded as part of a meaningful presentation.
  • It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay.
Length-of-Service Awards.

An award will qualify as a length-of-service award only if either of the following applies.

  • The employee receives the award after his or her first 5 years of employment.
  • The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years.
Safety Achievement Award.

An award for safety achievement will qualify as an achievement award unless one of the following applies.

  • It is given to a manager, administrator, clerical employee, or other professional employee.
  • During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value).
Deduction Limits.

Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following.

  • $400 for awards that are not qualified plan awards.
  • $1,600 for all awards, whether or not qualified plan awards.

For more information direct from the IRS on guidelines for awards, please see:
All Types of Awards
Employee Achievement Awards

Here is an excellent article that explores this issue in more depth:
Who Pays the Taxes When an Employer Gives a Gift?

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