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Achievement Awards: Employee Fringe Benefits (2026 IRS Guide)

This guide covers “Achievement Awards” within employee fringe benefits. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient’s pay.

In most cases, the excluded benefits aren’t subject to federal income tax withholding, social security tax, Medicare tax, federal unemployment tax under the Federal Unemployment Tax Act (FUTA), or Railroad Retirement Tax Act (RRTA) taxes and aren’t reported on Form W-2.

This section discusses the exclusion rules for the following fringe benefits.

  • Accident and health benefits.

  • Achievement awards.

  • Adoption assistance.

  • Athletic facilities.

  • De minimis (minimal) benefits.

  • Dependent care assistance.

  • Educational assistance.

  • Employee discounts.

  • Employee stock options.

  • Employer-provided cell phones.

  • Group-term life insurance coverage.

  • HSAs.

  • Lodging on your business premises.

  • Meals.

  • No-additional-cost services.

  • Retirement planning services.

  • Transportation (commuting) benefits.

  • Tuition reduction.

  • Working condition benefits.

See Table 2-1 for an overview of the employment tax treatment of these benefits.

Achievement Awards

This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. The exclusion doesn’t apply to awards of cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements granting only the right to select and receive tangible personal property from a limited assortment of items preselected or preapproved by you). The exclusion also doesn’t apply to vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. An achievement award must meet all the following requirements.

  • It is given to an employee for length of service or safety achievement.

  • It is awarded as part of a meaningful presentation.

  • It is awarded under conditions and circumstances that don’t create a significant likelihood of disguised pay.

Employee.

For this exclusion, treat the following individuals as employees.

  • A current employee.

  • A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee.

  • A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.

Exception for S corporation shareholders.

Don’t treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (for any day during the tax year) more than 2% of the corporation’s stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but don’t treat the benefit as a reduction in distributions to the 2% shareholder. For more information, see Revenue Ruling 91-26, 1991-1 C.B. 184.

Exclusion from wages.

You can generally exclude the value of achievement awards you give to an employee from the employee’s wages if their cost isn’t more than the amount you can deduct as a business expense for the year. The excludable annual amount is $1,600 ($400 for awards that aren’t “qualified plan awards”).

Deduction limit.

Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following.

  • $400 for awards that aren’t qualified plan awards.

  • $1,600 for all awards, whether or not qualified plan awards.

A qualified plan award is an achievement award given as part of an established written plan or program that doesn’t favor highly compensated employees as to eligibility or benefits.

A highly compensated employee is an employee who meets either of the following tests.

  1. The employee was a 5% owner at any time during the year or the preceding year.

  2. The employee received more than $160,000 in pay for the preceding year.

You can choose to ignore test (2) if the employee wasn’t also in the top 20% of employees when ranked by pay for the preceding year.

An award isn’t a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. To figure this average cost, ignore awards of nominal value.

Deduct achievement awards, up to the maximum amounts listed earlier, as a nonwage business expense on your return or business schedule.

Caution: To determine for 2026 whether an achievement award is a “qualified plan award” under the deduction rules described under Deduction limit above, treat any employee who received more than $160,000 in pay for 2025 as a highly compensated employee.

If the cost of awards given to an employee is more than your allowable deduction, include in the employee’s wages the larger of the following amounts.

  • The part of the cost that is more than your allowable deduction (up to the value of the awards).

  • The amount by which the value of the awards exceeds your allowable deduction.

Exclude the remaining value of the awards from the employee’s wages.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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