Feature Article - May/June 2011

A Taxing Situation

The Impact of Legislation & Tax Laws on Incentives

By Rick Dandes


In this post-recession era of corporate reinvention and tight budgets, organizations are looking for new and innovative ways to effectively recognize and reward employees, while stretching their awards budgets.

Their reasoning is basic: Over the past few years, companies have certainly learned about the value to their bottom lines derived from a fully engaged workforce; one that is motivated by an effectively designed and implemented incentive program.

Also certain, however, is that tax considerations stemming from corporate incentive programs can sometimes confuse employers and discourage the very employees the incentive programs were designed to motivate, if not properly addressed.

The law, specifically Section 274 (j) of the Internal Revenue Code, is explicit about what rewards are taxable—and which ones aren't. So it's very important that companies with reward and incentive programs in place understand the current legislation, and are aware of ongoing attempts to change it, said George Delta, counsel to the Incentive Federation Inc., an umbrella organization founded to promote, protect and research the incentive field.