Any employee recognition and rewards program brings with it questions about everyone’s favorite topic—taxes! While we aren’t tax advisors here at Motivosity, we hope that this article serves as a resource to help provide some questions to ask and some things to consider when it comes to taxes on your employee appreciation efforts.
Motivosity does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consult your professional tax advisor. The considerations in this document may not apply to jurisdictions outside the US.
How Does Motivosity Make Taxes Easier?
Most companies already have a payroll department with existing processes for dealing with compensation provided outside the traditional payroll system. Motivosity makes it easy to get the right information to the right stakeholders to be able to determine the right approach for taxing employee recognition rewards.
You can find all the tax information you need with the reporting that lives in Motivosity. View and filter Tax Summary reports within the platform, download them as an Excel file, or connect them to your existing payroll systems via API.
Is Employee Appreciation Taxable?
Generally speaking, any compensation given to an employee by an employer, whether cash or not, is considered taxable income in the United States. There are a few exceptions to this general rule. We’ve highlighted the most common of these below:
- Employee Achievement Awards: These are non-cash awards specifically related to either length of service or safety. These are awards under a formal plan that meets the specific criteria outlined by the IRS.
- Awards Transferred to Charities: This exemption is for awards that are specifically given to an individual in recognition of a charitable achievement where the recipient transfers the award to a charitable organization.
- De Minimis Awards: This type of award is defined by the IRS in Publication 5137 as: “A prize or award that is not cash or cash equivalent, of nominal value and provided infrequently.” Examples of this type of award include flowers for special occasions or nominal gifts for birthdays or holidays.
Who Is Responsible for the Taxes?
When reporting employee recognition rewards on payroll, the obligation for the tax withholding will generally fall to the employee unless the company elects to “gross up” the amount to cover the taxes. Whichever option you choose, we just suggest providing clear communication to your employees so they know what to expect.
How Frequently Do Rewards Need to Be Reported?
In a perfect world, all earnings would be reported as soon as they are earned. However, companies often determine that this is not practical from an administrative standpoint. So what is the correct cadence? Several factors can influence reporting frequency and every company’s situation is different. We suggest consulting with your tax and finance advisors to determine what is the best answer for your company.