How Are Employee Gifts Taxed?

The Internal Revenue Service issues very little guidance on employee achievement (incentive) awards. Section 274(j) of the IRS Code, enacted by the Tax Reform Act of 1986, provides, in general, that an employer may deduct the cost of employee achievement awards given to the same employee up to $400 in any year. If the incentive awards are employee achievement awards made under one of the established written plans or programs of the employer, the $400 limit is increased to $1,600.

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