Here’s Another Way to Compensate Employees – Awards

Laura is interested in how she can award some of her employees for doing a great job but doesn’t know if she will be able to pay as much next year.  She doesn’t want to increase their salaries or hourly wages because she is not sure how the rezoning of her area is going to affect her business.

Vivian and LaTonya are Laura’s two best employees and she is looking for a way to reward them for their efforts.  She decides that she is going to arrange a dinner for her employees and will present awards to her employees at that time.  A meaningful presentation is a requirement per the IRS.

Laura wants to give Vivian a length of service award because she was Laura’s first employee and has been with her for many years.  Vivian meets the requirements of the award for length of service, because she worked for Laura over 5 years and has not received this same award during the past 5 years.  Since the requirements have been met, Laura will be able to deduct this award.

LaTonya is an esthetician that works in Laura’s salon.  The customers know her best for the chemical peels she gives them.  This can be very dangerous if not done correctly, but LaTonya takes extra care with everyone she does this procedure for.  Laura wants to give LaTonya a Safety Achievement Award.  Laura will be able to take this deduction because it is not being received by a manager or other administrative employee and less than 10% of her employees have already received this award in the calendar year.

There are some limits to the deduction that Laura can claim, $400 for awards given that are not part of a qualified plan and $1,600 for the total of all awards regardless of if they are qualified.  A qualified plan means that Laura has established a policy for these awards that does not give an advantage to employees that are highly compensated; 5% owner or making an amount over the threshold determined by the IRS.

Laura will deduct these awards as a non-wage business expense.

For more information, contact Excerebus at or 407-988-5647.

Categories: Tax Information

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