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Tax breaks for incentive programs

There are significant tax advantages that can help reduce the overall cost of the programs.

Employee rewards and recognition programs can provide a number of benefits for any organization. The initiatives can be designed to improve workplace safety, reduce employee absenteeism, enhance customer service or deliver a number of other specific functions that can help a company succeed. The largest benefit for firms is the increased employee engagement that results from well-run programs.

A three-year study by Towers Watson found that businesses with higher-than average employee engagement had more productivity, higher profits and better returns for shareholders. Companies with engaged employees saw 19 percent growth over the course of the study, while the growth of those with disengaged workers declined by 30 percent.

Tax advantages
Despite the advantages, many businesses still hesitate to initiate employee reward programs, feeling they are too expensive. However, there are significant tax advantages that can help reduce the overall cost of the programs. The IRS allows employers to provide rewards to staff through certain types of programs – service and safety initiatives, for instance – without incurring tax penalties. Under the tax code 274(j), employees avoid paying taxes on the value of the awards as long as specific requirements are met. 

The rewards provided to employees cannot be cash, according to the tax code, but companies can deduct up to $1,600 worth of merchandise for their workers, provided these expenses are reasonable and for services performed. This policy has allowed businesses to create more effective incentive programs, as receiving items like golf clubs, handbags or computers provides greater motivation than cash.

Maximizing returns
Monetary rewards tend to be quickly forgotten, but enabling staff to choose something they will use consistently serves as a powerful reminder of the values the company is seeking to promote. The lasting effect is greater participation and more engaged workers, leading to higher profits and steady growth for businesses. This in turn benefits the government by providing additional tax revenue and, if the programs are geared toward worker health and safety, reduces healthcare expenses for both the firm and the government.

The tax advantages are contingent on meeting specific requirements. Companies can ensure that their initiatives are aligned with all legal requirements by working with incentive and recognition solutions specialists like Xceleration. By providing their clients with the knowledge and technology to comply with all prerequisites, these specialists are able to maximize firms' returns on investment for their employee reward programs.

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