Prior Law
Through December 31, 2017
An “employee achievement award” is an item of tangible personal property that an employer transfers to an employee for a length-of-service or safety achievement. It must be awarded as part of a meaningful presentation and under conditions and circumstances that don’t create a significant likelihood that the payment is disguised compensation.
The employer’s deduction for the cost of all employee achievement awards made to an employee in a tax year is limited to $400 if the award isn’t a qualified plan award, and $1,600 if it is a qualified plan award.
A “qualified plan award” is an employee achievement award that is awarded under an established written plan or program that doesn’t discriminate in favor of highly-compensated employees as to eligibility or benefits. The average cost of all employee achievement awards provided by the employer during the year that would otherwise be qualified plan awards can’t exceed $400.
“Tangible personal property” that can be given as an employee achievement award does not include cash or a certificate, other than a nonnegotiable certificate conferring only the right to receive tangible personal property. Other items that weren’t considered tangible personal property under the proposed regs included vacations, meals, lodging, tickets to theater and sporting events, and stocks, bonds, and other securities.
New Law
Effective for tax years beginning after December 31, 2017
For amounts paid or incurred after Dec. 31, 2017, a definition of “tangible personal property” is provided. Tangible personal property does not include cash, cash equivalents, gifts cards, gift coupons, gift certificates (other than where from the employer pre-selected or pre-approved a limited selection) vacations, meals, lodging, tickets for theatre or sporting events, stock, bonds or similar items, and other non-tangible personal property. No inference is intended that this is a change from present law and guidance.
Because awards of these items aren’t employee achievement awards, they can’t be excluded as such by the employee who receives them.
However, arrangements that confer only the right to select and receive tangible personal property from a limited array of items pre-selected or pre-approved by the employer qualify as tangible personal property.
Example
For his 30th anniversary with Employer, Employee was allowed to choose a gift from a selection of tangible items, such as electronics, jewelry, and housewares. This arrangement can qualify as an employee achievement award.
Cash and gift cards are not achievement awards that are excluded from wages. They are in fact, included in wages. These employee achievement awards that are being discussed are items that would not be included in the employee’s wages.
