how employee awards and prizes affect payroll

How Do Employee Awards Affect Payroll?

Know Your Tax Responsibilities

Awards and Prizes can be a Powerful Motivational Tool.

However, be aware of tax implications for your business and the employee recipient.

What’s the General Rule for Employee Awards & Prizes?

In most cases, awards and prizes given to an employee from an employer are included as income.

This means they are subject to:

• Federal income tax withholding

• Social Security & Medicare taxes

• FUTA (Federal Unemployment Tax Act) taxes

There are Exceptions.

There are some exceptions for noncash awards assuming various requirements are met.

These awards include length of service or safety achievement awards, civic and charitable awards, prizes for retail salespeople and gifts (excluding cash or cash equivalent).

What You Needto Know1. Employers are forbidden from

disguising compensation as a way of circumventing tax regulations and responsibilities.

2. The maximum excludable annual amount for employee awards is $1,600.

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