In the Tax Reform Act of 1986, Congress set forth a general rule that any amounts transferred in cash or in kind by or for an employer to an employee shall be treated as income. The only two exceptions to this rule were employee achievement awards and de minimis fringe benefits. The primary advantage of having an award qualify as an employee achievement award is that if certain statutory deduction limitations are met, the award is deductible by the employer but not taxable to the employee. Moreover, the award must be given as part of a meaningful presentation and cannot be disguised compensation paid to the employee. For example, an incentive award will not quality for favorable tax treatment if it is given at the same time that annual salary adjustments are made, or if it is used as a substitute for a program awarding cash bonuses.
Awards given for productivity also no longer qualify as employee achievement awards.
Once the 10 percent limitation is exceeded in any given year, any subsequent safety achievement awards are not deductible under the Internal Revenue Code. The Deficit Reduction Act of 1984 also created a statutory exclusion from income for certain fringe benefits that employers provide to employees. One such category is de minimis fringe benefits, which include any property or service that an employer provides to an employee. Such benefits will be excluded from the employee s income if the fair market value of the property or service is so small that accounting for it would be unreasonable or administratively impracticable. De minimis fringe benefits include the use of office equipment and support staff, meal allowances and taxi fares, commuting allowances, transit passes, office social functions, and gifts and awards.