Employees can exclude an
employee achievement award from gross income only if their employer is allowed to
deduct the award.
All the following requirements must be met
for an employee achievement award to be deductible by an employer:
• Employee
achievement award must be for length of service or for
safety achievement,
• Employee
achievement award must be tangible personal property, not cash or a gift certificate,
• Employee
achievement award must be given under conditions that do not create a likelihood of
disguised compensation,
• Employee
achievement award must be given as part of a meaningful presentation, and
• Employee
achievement award value may not exceed specified dollar limits.
Employee Achievement Award Exclusion Limit
Awards from nonqualified plans are limited
to $400, and total employee
achievement awards, from both qualified and nonqualified plans, are
limited to $1,600. Since the total awards must be aggregated, no one
employee may receive more than the $1,600 maximum in any year. Amounts
exceeding the above employee
achievement award limits must be included in an employee’s gross
income.
Qualified Plan Award
A qualified plan award is one made under an
established written plan that does not discriminate in favor of highly
compensated employees.
Safety achievement awards will not qualify
if given to a manager, administrator, clerical, or professional employee;
or if given to more than 10% of the other employees during the year.
Length-of-service awards will not qualify
if given to the employee during the first five years of employment; or if
given to any one employee more than every 5 years.
