5.6.12 Qualified Awards Program Locations may bestow an employee award on a staff member for exceptional performance, length of service, or safety achievement. Such awards may have income tax implications for the recipient.
If the award is for exceptional performance, the dollar amount or the market value of the award is considered income to the employee and must be included on the Form W-2. For instance, an outstanding teacher is awarded a weekend in San Francisco worth $700 in travel and hotel costs. The $700 is income to the teacher.
If the location establishes a written awards plan — known as a "qualified plan" — in which either a length-of-service or safety award is given as part of a meaningful ceremonial presentation, with conditions and under circumstances that do not create a significant likelihood that the award is merely disguised pay, then $1,600 of the market value of the award may be excluded from income tax reporting requirements. This exclusion does not apply to cash or cash-equivalent awards, or to a length-of-service award received for less than five years of service or if the employee received another length-of-service award during the year or the previous four years. If no written awards plan exists, the amount of the tax exclusion is $400.
For instance, if the location does not have a written awards plan and a weekend in San Francisco worth $700 is awarded to the school office manager who has been employed by the school for 25 years, $400 of the market value of the award is excluded and only $300 is included as income. If the manager is given $700 in scrip, the full $700 is included as income because scrip is treated as if it were cash. On the other hand, if the location has a qualified plan, the full value of the San Francisco trip is excluded as income, while the value of the scrip is included.