Did you know the IRS allows companies like yours to deduct what you pay employees for recognition and wellness programs? Certain conditions and limitations apply, of course, but these benefits could save your company thousands. The catch? Awards can’t be cash, gift certificates or other intangible property (like travel, tickets, etc.).
While our industry refers to these acknowledgements as recognition awards, they’re also referred to as “achievement awards” and “wellness programs.” To qualify for tax deductions, these types of awards need to meet definite criteria. They must:
- Be tangible property
- Be awarded as part of a meaningful presentation
- Be part of an established written plan or program
- Not be disguised as pay
- Not favor highly compensated employees
Here are the programs that qualify and a few things to think about when it comes to tax advantages and restrictions:
- Length-of-Service Awards—Given after the first five years of employment and in five-year increments ongoing. Employees can’t be given similar awards (other than very small value) in the prior four years.
- Safety Achievement Awards—Given for meeting certain corporate safety metrics. But be aware, only 10% of qualifying employees can receive this award per year.
- Wellness Programs—Companies enjoy tax credits with wellness programs aimed at enhancing physical and mental health. (Not to mention increased productivity and profit from a healthier workplace.) Organizations can deduct up to $200 total for the first 200 employees participating in a wellness program and $100 total for all additional participants.
One more thing to remember: Deductions for the cost of employee performance awards given to any one employee in a tax year are limited to $400 for awards that aren’t qualified plan awards and $1,600 for all awards (whether or not they’re qualified plan awards). You can deduct achievement awards as a non-wage business expense on your return or business schedule.
These points are just for your consideration. Every company has to use discretion when interpreting and deploying tax advantages to their unique situation. Remember the best rule of thumb is to partner with your organization’s internal legal counsel and accounting leadership when building program strategy.