Cash Awards

[DTH]

We give our employees American Express gift cards for achievement awards and for other purposes. It is my understanding that this is taxable income to the employee. For all plan purposes, we use W-2 as our plan's definition of compensation excluding safe harbor fringe benefits.

I assume that in the payroll period in which we tax the amount of the gift card that I would also take out elective deferrals from the gift card amount. For example for the pay period salary is $1,000 and the gift card is $50, I would take deferrals from $1,050.

If I don't want to deal with this, I am thinking about excluding cash awards from the plan's definition of compensation. I assume that I'll need to do a Compensation test under 414(s)(3) to do this.

Please let me know your thoughts.