Reward-based programs should not result in a tax burden for employees. However, employees may face taxes when rewards take the form of gifts cards or vacations that are given a cash value. Employers have two options - limit programs to narrowly defined non-taxable rewards, or implement alternative approaches like Taico's Taxcentives module to eliminate taxes on rewards. Proper planning is needed to design tax-free employee reward programs.

1. Lose the tax burden on reward-based programs!
Reward-based programs should never become a tax burden to employees. Here’s a few scenarios that
reminds us that just implementing a rewards program doesn't result in success unless it's done right.
You announce that you're giving your employees or salesforce a reward because of their exceptional
efforts. But, when they receive their reward they find out a significant amount of taxes have been
deducted from their paychecks.
Or, your employee saves up their reward points to take a trip of a lifetime. Later that year the employee discovers that he will
owe the government several hundred dollars in taxes as a result of the value of that wonderful vacation.
Or, workers at an automotive supplier received $100 gift cards, and federal and state income taxes totalling 36.75 per cent were
taken out. That means the “gift” will take $36.75 out of the workers’ next pay checks.
“Our employees were furious that they have to pay income tax on their awards…some of them even refused their gift cards
rather than be taxed“
A reward in one hand and a tax bill in the other, not exactly motivation. . Employers really have only two choices: limit the
program to meet the narrow definition of what is considered a non-taxable reward, or develop an alternative approach that
alieviates the tax burden on the employee. One solution is implementing Taico®'s Taxcentives™ module. A innovative tool your
employee can use to lose the tax burden attached to their reward. Obviously there is a plehera of frequently asked questions
about the tax/reward issue. What's taxable and what is not? Its important to realize that your company's specific tax questions
are best addressed by your tax expert. They can best advise you when designing your employee rewards program to meet the
limited non-taxable definitions.
Q. Can the program offer gift cards, Visa, American Express, etc. that are redeemable anywhere, same as cash, as a base
award?
A. Gift cards can be offered; however doing so may create tax reporting problems for both the employer and employee. The fact
that the points can be redeemed for an item that is the equivalent of cash, results in the application of a different set of tax rules
with respect to the timing of recognition of taxable income. If a program, for example offers a $50 gift card for 500 points, then
the IRS may treat the employee as receiving taxable income at the time the points are awarded, rather than at the time the
points are redeemed.
Q. What types of awards are exempt from tax reporting requirements?
A. Employees can exclude from their gross income, the value of tangible personal property awarded for length of service or
safety, if the cost to the employer of the award does not exceed $400. Awards of gift cards, gift certificates, trips, etc. do not
meet the definition of tangible personal property and would be fully taxable when received.
Q. Are there other types of non-cash compensation that are excludable from employees’ income.
A. Employers are able to offer their employees certain specified benefits without tax consequences. But these are generally
limited to intangible benefits and services that are directly related to the employer’s business or the employment relationship.
Examples include a hotel chain offering free hotel stays to employees, a retailer offering qualified employee discounts on
merchandise, any employer providing retirement planning services, qualified moving expense reimbursements, on-premises
gyms and athletic facilities, and de minimis fringe benefits.
Taico® :: 67 Patterson Village Ct., Bldg F :: Patterson, NY 12563 :: 845-228-GIFT (4438) :: fax: 845-228-5136 :: info@taico.com
© 2012 Taico® Incentive Services Inc.

2. Q. How does an employer determine what items are taxable to employees and which items are not taxable?
A. As a general rule, one must assume that all forms of remuneration, whether provided in the form of cash or in the form of
e,
property or services, must be included in “wages” for payroll tax and reporting purposes. Exceptions to this general rule are
limited and specific.
Q. What constitutes a de minimis fringe benefit
benefit?
A. A de minimis fringe benefit is any property or service, the value of which is so small as to make accounting for it unreasona
unreasonable
or administratively impracticable.
The following items have been held to MEET the definition:
• Occasional typing of personal letters by a company secretary
• Occasional cocktail parties, group meals, or picnics for employees or their guests
• Traditional birthday or holiday gifts of property with a low fair market value
oliday
• Occasional theatre or sporting event tickets
• Coffee, doughnuts, and soft drinks
• Local phone calls
• Flowers, fruit, books or similar property provided to employees under special circumstances
The following items have been held to NOT meet the definition:
• Season tickets to sporting or theatrical events
• Community use of an employer – provided vehicle or other vehicle for more than in day a month
• Membership in a private country club
• Use of employer-owned or leased facilities for a weekend
owned
• $35 gift card at holiday time
Developing an effective (tax-free) reward-based program can be a rewarding experience for all. It just takes time and a little pre
based pre-
planning. In a future article we’ll discuss an alternative approach to rewards plan design that may enable an employer to off a
offer
broader, more effective program, while at the same time, not burdening the employee with unpleasant tax consequences.
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Taico® :: 67 Patterson Village Ct., Bldg F :: Patterson, NY 12563 :: 845
845-228-GIFT (4438) :: fax: 845-
-228-5136 :: info@taico.com
© 2012 Taico® Incentive Services Inc.