Employee Recognition Awards Remain Tax Exempt – So Long As You Give ‘Stuff’

Jan 24, 2018

2018 will mark a year of tax reform, as the current administration’s Tax Cuts and Jobs Act of 2017 goes into effect. The question of whether employee awards count toward taxable income have always been a chief concern for the recognition and rewards industry, and many of our customers (not to mention us) have been wondering how this new bill will change the status quo, since the text of the bill wasn’t revealed until after the House and Senate votes.

Fortunately, as it stands now, the tax codes that encourage employee awards survived the bill’s many revisions and will continue to benefit companies who are committed to meaningful employee rewards. Here’s a recap.

Sections 74(c) and 247(j), the two most important codes for employers, providing exclusions and deductibles for tangible employee gifts respectively, have been preserved. This means achievement gifts that fall under the definition of “tangible personal property” will continue to not count toward an employee’s taxable compensation, and employers may continue claiming deductibles on the cost.

Thankfully the Senate revisions of the bill also provided some new clarifying language on what a “tangible personal property” actually is. According to the new definition, “tangible personal property” shall not include:

“…cash, cash equivalents, gift cards, gift coupons or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected and pre-approved by the employer), or vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items.”

This small amendment simply clarifies and codifies the current policy, going on to state that “no inference is intended that this is a change from present law and guidance.” Notably, this change adds an official definition of a tax-exempt employee reward programs – “conferring only the right to… a limited array of [tangible personal property] items pre-selected and pre-approved by the employer.”

Tax-wise in 2018, it appears to be business as usual for recognition and rewards, but we will of course keep very close watch on developments so you can stay ahead of the game

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