Finance & Tax Consideration for Rewards

  • Updated

Below is a sample guide to consider when determining certain finance and tax implications of a formal rewards program. While it is up to your organization to determine your policies — we are not tax advisors! — we thought it would be helpful to share some themes across the WorkTango customer base.

Once you have more details of your organization’s policies and answers to the following questions, our Customer Success team can configure your platform accordingly.

What is taxable, and what isn't?

Many companies decide that any reward points spent on donations, charities, or ways to “give back” are not considered taxable income to the employee. For the majority of other reward items (e.g., gift cards and physical rewards), most customers consider these to be “taxable income” to the employee and report this information to payroll.

What will the minimum threshold be for taxable redemptions?

In other words, what dollar amount triggers the taxation of a reward to the employee?

  • The majority of customers choose a minimum threshold around $50/item.
  • Some customers set “any dollar amount” as the minimum threshold.
  • A few customers have an annual threshold, such as $100/year.

How often do we send this information to Finance/Payroll?

Most customers send at the end of each month, while many still choose to send at the end of every quarter. And still, some never send it. Why? They choose not to report the item as taxable income at all. Your call! Here is an example of what other customers have used for their Tax Liability Message (under Admin > Tax Settings):

This reward is a taxable item and will be processed with the payroll corresponding with the pay period in which you redeem the reward. The reward amount(s) will display on the earnings section of your pay stub as Gift In-Out.

Who will be responsible for the taxes? 

And how should we message that to employees?

Many customers gross up and absorb the taxes on behalf of the employee. Other customers pass off this responsibility to the employee. In either case, you have the option to include a message on taxable rewards to alert employees of your approach to handling taxes.

How will the report get to payroll?

Generate a “Taxable redemptions by employee report” via Insights > Reports. This generates two CSV reports that you can then send to payroll:

  • Redemptions by employee — provides a summary of all the redemptions from the selected time period organized by employee
  • Total redemptions — provides a full account of each redemption from the selected time period broken out redemption by redemption

Or give your payroll team access to generate the report themselves through the “Finance” role. You can assign this permission by editing a user in Admin > Users > Roles & Groups.

  • Tax Alert! A friendly reminder that all redemptions for monetary awards are reported to Payroll based on the value. Don’t worry, we’ll make sure your earnings are adjusted so that your taxes are properly withheld.
  • Tax Liability Notice: All redemptions for monetary awards (gift cards, products, etc.) are reported to Payroll. Once you meet the materiality threshold, your earnings will be adjusted so that your taxes are properly withheld.

Bonus Topic!

Have your benefits team review your rewards and Incentives for compliance!

Many customers send their employee Rewards and Incentives catalogs to their benefits team/provider to ensure they are in line with all compliance and healthcare-related laws. Your Benefits Team can weigh in on the inclusiveness and risks related with any Reward or Incentive.

 

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