Did you know your Service Award gifts are not taxable?
Bill retains tax exclusion for employee achievement awards
Unlike other incentives such as points, gift cards and vouchers (which your employees must claim as taxable income), service achievement awards are not considered a taxable benefit.
This valuable and important tax exclusion was at risk of being reversed by the House of Representatives in December 2017. Thankfully, careful monitoring and calls to action by the Incentive Federation (IFI) and their members ensured Section 274 (j) of the IRS Code pertaining to Employee Achievement Awards was retained…to the relief of our clients and the industry as a whole.
We bring this up now as many organizations are unaware their Service Awards are tax exempt or that this significant employee benefit was almost lost. Tax law is not for the faint of heart so it’s not surprising that many HR professionals are a little murky on what awards/rewards are taxable and tax exempt. Service Awards are considered “tangible personal property” and the new bill aims to more clearly define what “tangible property” includes and what is considered a tax-deductible award. The language is summarized here:
“Tangible personal property shall not include cash, cash equivalents, gift cards, gift coupons or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer), or vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items”.
This definition clarifies and provides more guidance on compliancy, with no apparent change from past law.
How and why to recognize employees with a Service Award
Tax implications are just one reason why 86% of companies offer a length-of-service program. Service awards are special. They provide an opportunity to demonstrate your people-first culture and create a sense of pride in work and company. Gift cards, movie vouchers and other cash and non-cash gifts are individual. Service awards are meant to be shared and celebrated together. Whether it’s to commemorate the first, third, fifth or twenty fifth year with the company, these milestones allow you to publicly reinforce your core values to the individual and their team.
Still unsure what awards are taxable or exempt? As a member of Recognition Professionals International, our recognition and reward professionals would be happy to provide a complimentary evaluation of your awards and answer any questions you have about the tax implications.
Contact us here or reach out to your local CSI STARS recognition partner.
Lori is Vice President Marketing for CSI STARS and a Certified Recognition Professional. Prior to CSI she worked at Mercer Human Resource Consulting and Youthography, a youth market research agency. Connect with CSI STARS on LinkedIN to learn how we help organizations cultivate a workforce that loves coming to work.