Award Programs for Employees

[Guest strayhorn]

I am interested to know how employers have structured award programs to avoid potential constructive receipt of income by employees. For example, a program in which employees accumulate points towards awards such as gift certificates or even items that otherwise might constitute a de minimis or working condition fringe. Thanks.

[Guest ettsi]

We are Executive Tour & Travel Services located in Daytona Fla. We are full service travel agency that also offers Travel Incentives, Employee Rewards and products to increase sales. Our employee rewards are pre-paid by the company so the end user is only responsable for the taxes. This is a great way to reward employees. It gives them memories versus just a keychain or cash that is tossed aside or spent on bills. Many of our clients use a point system. Some give the vacation at award ceramonies or run contest.

[Lori Friedman]

It's the ultimate gift -- and not the structure of the reward program -- that's relevant.

As you know, your gift may have unintended tax consequences for your employee. Although certain gifts are nontaxable, many job-related gifts are considered to be taxable employee compensation, fully subject to withholding and payroll taxes and reported on Form W-2. Your generosity goes much further if you provide gifts that are excluded from taxation.

I have some detailed information about different types of gifts. Rather than post an enormous message here at the board, I'll contact you by email.

[mbozek]

On what part of the gift program would there be constructive receipt? Most gift programs give employees gifts for reaching a certain goal at which point the gift becomes taxable unless exempt under the fringe benefit rules. Awarding points toward a gift certificate would not be taxable because it has no economic value. A few years ago the IRS issued a ruling that taxed employees on frequent flyer miles from employer paid tickets which were eligible for an upgrade or a free flight. The ruling was revoked a day after an article on the ruling appeared in the WSJ.