Employee recognition is a vital component of a healthy, productive workplace. Taking the time to thank your employees for their hard work and dedication can not only improve morale but also increase performance and loyalty. Although recognition for employees is beneficial for employers, there are tax implications that come along with it.
Types of Recognition
There are many different types of recognition that employers can use to reward their employees. Some of the most popular include:
- Gifts: this can be a simple gift card or even more meaningful items like a plaque or award.
- Bonuses: cash bonuses are a great way to ensure employees know they are valued and also to keep motivated.
- Recognition events/programs: such as employee of the month or year awards.
- Time off: additional paid or unpaid time off is an effective way of appreciating employees.
- Public recognition: praise in front of colleagues to recognize outstanding work.
Tax Implications
Recognition for employees is subject to taxation, based on the type of recognition used.
- A gift with a fair market value of less than $25 is typically not taxable.
- Cash bonuses and gifts above $25 are taxable based on the employee’s withholding rate.
- Time off as a reward is taxable in the year it is received, not when it is taken.
- Public recognition given in the form of a certificate or plaque does not have an obvious cash value and is not taxable.
It is important for employers to keep detailed records of all recognition given to employees; this will help them in the event of an audit.
Overall, the tax implications of recognizing employees should not deter employers from doing it. Taking the time to thank and reward employees is beneficial for everyone involved, and knowing the tax implications can help employers ensure it’s done correctly.
