---
title: Tax-Free Employee Awards
description: Tax-Free Employee Awards
image: https://info.ongandcompany.com/hubfs/8d9wdb35109ac9e3.jpg
---

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# Tax-Free Employee Awards

[Richard Ong](https://info.ongandcompany.com/blog/author/richard-ong) / January 19, 2019 /

[Tax Planning](https://info.ongandcompany.com/blog/topic/tax-planning), [Payroll](https://info.ongandcompany.com/blog/topic/payroll), [Tax Deductions](https://info.ongandcompany.com/blog/topic/tax-deductions)

![](https://app.hubspot.com/settings/avatar/89ca6f67445537c2c631f1fe9d43c977)

# **Reward employees with tax-free achievement awards**

How can you motivate employees? One way is to set up an achievement award plan that rewards length of service or safety measures. If certain requirements are met, both your company and the recipients can collect tax breaks.

**Achievement awards 101**

Generally, employees aren't taxed on tangible personal property given under an achievement award plan.

Recent tax legislation clarifies that "tangible personal property" does not include cash, cash equivalents, gifts cards, gift coupons, gift certificates (other than those where from the employer pre-selected or pre-approved a limited selection) vacations, meals, lodging, tickets for theatre or sporting events, securities and other non-tangible personal property.

However, items like electronic devices, watches, golf clubs and jewelry do qualify. The cost of these items is deductible by the company and tax-free to the employees.

To qualify for this favorable tax treatment, these requirements must be met:

- Any employee may receive a length-of-service award, but you can't give safety awards to managers, administrators, clerical workers and other professional employees.
- The award doesn't qualify if the company granted safety awards to more than 10 percent of the eligible employees during the same year.
- The award must be part of a meaningful presentation.
- The employee must have worked for the company for at least five years for a length-of-service award.

If a company uses an award plan that doesn't meet these qualifications, an employee may receive only up to $400 in awards without owing any tax. The limit is raised to $1,600 for awards through a qualified plan. (Any excess is taxable to the employee and can't be deducted by the employer.)

There are two additional requirements for qualified plans:

1. It must be a written plan that doesn't discriminate in favor of highly-compensated employees.
2. The average cost of all employee achievement awards for the year can't exceed $400.

Call if you have questions about setting up an tax-friendly achievement award plan for your employees.

[![Schedule Free Consultation](https://no-cache.hubspot.com/cta/default/2284926/3294d327-5b89-47f5-a693-919af26dcdf4.png)](https://cta-redirect.hubspot.com/cta/redirect/2284926/3294d327-5b89-47f5-a693-919af26dcdf4)

 

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