Q&A: Are Employee Service Awards Taxable?

A qualified employee achievement award must meet a number of requirements.

Our church is considering an employee service awards program for rewarding employees who have worked a specified number of years for our church. A member of our governing board has asked if these awards would be taxable income to the employees?

Qualified employee achievement awards are not taxable to the employee. A Qualified employee achievement award is one that meets the following requirements:

(1) The award is tangible personal property (not cash, gift certificates, or securities);

(2) The award is given to an employee for length of service or safety achievement;

(3) The award is presented as part of a meaningful ceremony, and under circumstances that do not indicate that it is disguised compensation; and

(4) The amount that is not taxable is limited to the employer’s cost and cannot be more than $1,600 ($400 for awards that are not Qualified plan awards) for all such awards received by an employee during the year. A Qualified plan award is an achievement award given as part of an established written plan or program that does not favor highly compensated employees as to eligibility or benefits. A highly compensated employee for 2009 is an employee who received more than $110,000 in pay for the preceding year. An award is not a Qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be Qualified plan awards except for this limit) is more than $400. To fi gure this average cost, ignore awards of nominal value.

The exclusion for employee achievement awards does not apply to the following awards:

  • A length−of−service award given to an employee for less than five years of service or if the employee received another length−of−service award during the year or the previous four years.
  • A safety achievement award given to an employee who is a manager, administrator, clerical employee, or other professional employee or if more than 10 percent of eligible employees previously received safety achievement awards during the year.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay