Now that you know the benefits of incentive travel and why you definitely want an incentive trip as part of your overall program, how do you work out the taxes?
There’s several things to consider when thinking about taxes for an incentive trip. The company will be able to write off the trip as a business expense as long as it’s not excessive compared to the value of the goals. However, the recipient of the award will now be responsible for paying taxes on the full value of their winnings.
Gross Up Your Incentives!
While no one likes to tell program guests that they’ll be hit with the taxes for their reward at the end of the year, it is important to understand the tax implications.
Since the intention of an incentive program is to reward the recipient with a great experience, many organizations choose to “gross up” by contributing additional money in the form of payroll tax withholding to offset the tax liability.
This increases the overall program budget, but provides incentive program winners with the full value of the experience minus the sting of a tax bill at the end.
Can I Avoid Taxes if I Hold a Meeting?
Nothing is black and white, but this area is extremely gray. Here’s the reality: If you want the IRS to believe it was a meeting and not an incentive program, then there better be some meetings held. That being said, who wants to sit in a meeting all day while in Bora Bora?!
It’s up to you how you handle this detail and many companies claim their incentive trips as meetings, but it needs to truly be a meeting environment if that is the case. We can definitely help you plan a conference in a great area to attract attendees, but that’s a completely different beast than an incentive trip
I’m a Travel Advisor Not an Accountant
Tax laws change every day and every state can be a bit different. Please, make sure to consult with your local experts to make sure your area is not an exception to these general guidelines.
The IRS’s “Employers Supplemental Tax Guide, Publication 15-A” States in the Employee Achievement Awards Section that:
“To be excludable from your employee’s gross income, the award must be tangible personal property given to an employee for length of service or safety achievement, awarded as part of a meaningful presentation, and awarded under circumstances that do not indicate that the payment is disguised as compensation.
“To be exempt, tangible personal property awards cannot be in the form of cash, check, credit/debit cards, gift certificates, meals, lodging, event tickets and stock certificates or other securities.”
This simply means that any additional incentive rewards will be viewed the exact same as income. However, you’ll need to consult your tax attorney when it comes to Leadership that might attend as a host, but has not earned the incentive. There are varying opinions on this little detail.
So What Do You Need To Do?
As your Travel Advisor, we will provide you with a Fair Market Value for the trip including all travel, room gifts, meals or activities. This number will not include any additional fees that are incurred because of the nature of group travel, so it will by definition be lower than the cost to the company; therefore saving slightly on taxes. Cash awards cannot provide any such tax savings to the recipient. This will need to be reported to the IRS and given to the participant on their W-2 or a 1099-MISC if they’re an independent contractor.
Have more questions?
Let The Travel Byrds handle all of the details of your next incentive trip. We’ll take care of the itinerary, utilize the budget to get the most value, handle the booking tasks, and provide you with marketing to get your team excited to make that next sale!
To begin planning your trip, contact The Travel Byrds today! We’re eager to help you experience life!
Owner and Extreme Travel Enthusiast