US Tax Benefits for Qualified Employee Rewards

Companies operating in the US can take advantage of tax benefits when they offer qualified employee achievement rewards, service, safety, and suggestion programs. We'll discuss these benefits below, but please note that this article is for information purposes only, and that any tax filing you do related to employee rewards should be prepared by a qualified professional.

Employee Achievement Rewards

Businesses can deduct up to $400 per year per employee for any reward that's qualifies as tangible personal property (not gift cards). This could include, for example, the cost of a watch for years of service or an office safety kit for a safety training accomplishment.

Only Tangible Personal Property Permitted

Gift certificates and gift cards are not deductible as they are not considered "tangible personal property," which is defined as something owned by an individual or a business that can be moved (so a house or building wouldn't qualify). This means Brand-name merchandise, like products from catalogs, is deductible.

Service and Safety Rewards

The Internal Revenue Service allows employees to receive rewards tax-free under certain conditions.

To qualify you must have an established, documented program that does not favor highly compensated employees. The average cost of all employee achievement rewards given during the year cannot exceed $1,600 for programs that qualify under these rules, and $400 for programs that don’t.

Length-of-service rewards may be non-taxable to employees if:

• They are not "disguised compensation"
• They are given as part of a published qualified program
• Length of service rewards cannot be received during the recipient's first five years of employment, or more often than every five years
• Safety rewards, to qualify as non-taxable, cannot be given to more than 10% of employees, and cannot be available to managers, administrators, clerical employees, o other professional employees

Employee Suggestion Rewards

Under certain circumstances, the same tax advantages apply to suggestion systems that are vital to an organization’s operations.

For more information regarding these tax rules, see this page from the Internal Revenue Service (IRS) website. 

Be sure to contact an attorney or tax professional to confirm the rules that apply to your organization.