how employee awards and prizes affect payroll
DESCRIPTION
Does your small businesses offer awards and prizes to employees? Your payroll could be affected. There may be tax consequences that you need to know about to avoid trouble down the road. Here's a look at what you need to know when running payroll when employee awards involved.TRANSCRIPT
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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