Page 147 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
and equipment related to training; they do not include expenses for
lodging, meals, and transportation, nor education related to sports or
hobbies unless this education is both related to the business and is part
of a degree program. If all of these conditions are met, then using an

EAP will allow each employee to exclude up to $5,250 per year for
educational assistance paid by the employer.

Employee Achievement Awards
Employee achievement awards can be excluded from employee gross
income, but only if the awards are tangible property, given in recognition

of length of service with the business or for safety achievement and as
part of a meaningful presentation. This exclusion is up to $400 per year.
A higher limit of $1,600 applies if the awards are made under a written
plan that does not favor highly compensated employees.The total exclu-
sion for both types of awards is $1,600,not the combined total of $2,000.
Example. Marion Smith receives achievement awards for every
quarter during which she works in a meat-packing plant without being
injured. Every quarter, she is paid a bonus of $50 during a formal
achievement ceremony. This payment is taxable gross income to her,

because it is a cash award instead of a tangible award.

Golden Parachute Payments
So-called golden parachute payments are made to employees or officers
as a result of a change in corporate control or ownership. This type of
payment is subject to all normal payroll tax withholdings. In addition,

if the payment is more than three times a person’s average annual com-
pensation for the past five years, the employer must also withhold a 20
percent excise tax for the incremental amount exceeding this limit.
Example. The Golden Egg Company has laid one by being sold to
a large international conglomerate. Under the terms of a golden para-

120