Thinking of giving your employees a year end bonus?  Keep in
mind that in most cases cash and non-cash awards & bonuses ARE TAXABLE for federal and state employment taxes.
 
To be non-taxable the award or bonus must:
1. Be part of a meaningful presentation (such as ceremony
& award for length of service)
2. Not be "tangible personal property" (such as cash,
stocks, bonds, meals, lodging, sports & theatre tickets)
3. Not exceed $1600 per employee per year and not average
more than $400 per employee per year
AND
- Be given under a written qualified plan or program
 OR
- Not exceed total of $400 per employee (under non-qualified plan)
 
What is a qualified plan?
A formal written plan document that does not discriminate in favor of highly compensated employees.  Under this type of plan. the limit is $1,600 for any individual employee, but the total awards cannot exceed an average of more than $400 per employee for all those who receive an award.  This means that if one employee receives an award valued at more than $400, the company must also give enough awards of lesser value to enough employees to bring the average value down to $400 or less to all recipients.
 
What is a non-qualified plan?
When the employer gives out awards & bonuses meeting
conditions 1-3 above, but does not have a formal written plan in place, this is called a non-qualified plan. Under a non-tax qualified plan, an employer cannot give an award of more than $400 in value to any single employee, but there is no restriction on the number of recipients.
 
Year end & holiday bonuses generally do not meet the requirements above and so MUST be included on the employee's W2 earnings and the employer must pay employment tax on these amounts.
 
Contact us for more information on taxable and non-taxable benefits or to find out how to properly issue and track employee bonuses & awards.