Employee Achievement Award Is Tax Deductible
Good employees are so valuable to your growing business, particularly those that stay with you for many years. One way to honor them is to give them a meaningful present or award. The tax code allows for an “employee achievement award” which means you can buy something for your employees to acknowledge & thank them for their years of service. Most importantly, you get a tax deduction too.
Typically, the money or property you give to your employees for their work is compensation, even if you intend for it to be a gift. For employees, that also means taxable income.
What Counts As An Employee Achievement?
- Length of service awards
- Safety awards
Notably, we will focus on length of service awards for this blog post. You can give this award to an employee once every five years.
What Qualifies For An Achievement Award?
- Tangible property – not cash or cash equivalent. Think things like watches, cookware, and televisions. You cannot give money, gift certificates, vacations, meals, tickets, lodging or stock.
- Meaningful presentation – You must provide the award during a “meaningful presentation.” That means you should have some ceremonious observance in which you recognize your employee for his or her service.
- Deduction limit – The tax deduction limit for an achievement award is no more than $400 per employee per year.
- No disguised compensation – You can’t cut the employee’s salary to give a tax-free achievement award or otherwise give the award as a disguise for regular compensation.
Tangible property is long-lasting. Therefore, when your employee sees the item, they will think fondly on their years working for you. The cost of the tangible property award is limited to $400. The IRS, however, looks sharply at deeply discounted tangible items. Therefore, opt to purchase something that has a fair market value of around $400 to avoid violating the $400 limit.
By creating a plan to receive an achievement award, you encourage your employees to stay with you for 5 or more years. Moreover, it gives you a way to say “thank you” for their dedication and service to your business. Let Paragon help you create tax deductions and tax savings with your employees. Contact us today!