Chapter 2 of Publication 535, Business Expenses.
Pertaining to the tax advantages of rewarding employees for specific recognition.
You can generally deduct amounts you pay to your employees as awards, whether paid in cash or property. If you give property to an employee as an employee achievement award, your deduction may be limited.
Achievement awards. An achievement award is an item of tangible personal property that meets all the following requirements.
· It is given to an employee for length of service or safety achievement.
· It is awarded as part of a meaningful presentation.
· It is awarded under conditions and circumstances that do not create a significant likelihood of disguised pay.
Length-of-service award. An award will qualify as a length-of-service award only if either of the following applies.
· The employee receives the award after his or her first 5 years of employment.
· The employee did not receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years.
Safety achievement award. An award for safety achievement will qualify as an achievement award unless one of the following applies.
1. It is given to a manager, administrator, clerical employee, or other professional employee.
2. During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety achievement award (other than one of very small value).
Deduction limit. Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following.
· $400 for awards that are not qualified plan awards.
· $1,600 for all awards, whether or not qualified plan awards.
Exclude the remaining value of the awards from the em. This exclusion applies to the value of any tangible personal employee’s wages. property you give to an employee as an award for either length of service or safety achievement. The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. The award must meet the requirements for employee achievement awards dis-cussed in chapter 2 of Publication 535, Business Ex-