According to the Internal Revenue Service (IRS), in order for a length-of-service award to be excludable from wages, special requirements and dollar limitations must be met. A qualifying award:
• Must be given for length-of-service;
• Cannot be a disguised wage;
• Must be awarded as part of a meaningful presentation;
• Must be an item of tangible personal property (cannot be cash, cash equivalent, vacations, meals, lodging, theater or sports tickets, stocks, bonds); and
• Must meet other special requirements and limitations, discussed below. (Reg. §1.274-8(c))
An award will not qualify as a length-of-service award if either of the following applies:
1. The employee received the award during his or her first five years of employment.
2. The employee received another length-of-service award (other than one of very small value) during the same year or in any of the prior four years.
Note: A traditional retirement award is an exception to the five-year rule. (Reg. §1.274-8(d)(2))
For more information or to take advantage of the MBA’s FREE HR/Legal hotline and services call 814/833-3200 or 800/815-2660 or email hrservices@mbausa.org.
