Employee Achievement Award Tax Checker: the IRS $400 and $1,600 Limits
A service-anniversary watch can be tax-free to the employee; a gift card of the same value never is. Describe one award — what it is, what it is for, what it cost — and the checker runs it through each test in Internal Revenue Code §274(j) and IRS Publication 15-B, then shows how much of it lands in the employee's wages.
The award
Usually the retail price. It can differ from cost when you buy below retail or pay extra for engraving.
“No” if, for example, the award replaces a bonus employees would otherwise get.
Enter cost. The $400 and $1,600 limits are per employee, per tax year, across all their achievement awards.
Not a qualified plan award: up to $400 a year can be excluded.
deductible: $400.00
- Tangible personal property
- Given for length of service or safety
- Received after the first 5 years of employment
- No service award this year or in the prior 4 years
- Recipient is not a manager, administrator, clerical or professional employee (not applicable)
- Safety awards so far reach no more than 10% of eligible employees (not applicable)
- Part of a meaningful presentation
- No significant likelihood of disguised pay
The same $500.00 given five different ways
| Award | Included in wages | Excluded | Outcome |
|---|---|---|---|
| Service award item, no written plan | $100.00 | $400.00 | Achievement award, partly taxable |
| Service award item, qualified written plan | $0.00 | $500.00 | Excludable qualified plan award |
| Holiday or thank-you item | $500.00 | $0.00 | Taxable wages |
| Gift card | $500.00 | $0.00 | Taxable wages |
| Cash | $500.00 | $0.00 | Taxable wages |
Uses your cost, value and earlier awards, and assumes the presentation, disguised-pay and 5-year service tests are met. The qualified-plan row assumes a plan average of $350.
The rules the checker applies
Every test below comes from the statute (26 U.S.C. §274(j)) or from IRS Publication 15-B for 2026, which restates it for employers. The dollar limits are written into the law itself and are not adjusted for inflation, so they are the same $400 and $1,600 that applied in earlier years.
| Test | What the rule says | Where |
|---|---|---|
| Form | Tangible personal property. Not cash, cash equivalents, gift cards, gift coupons or gift certificates — unless the card only lets the employee pick an item from a limited assortment you preselected. Not vacations, meals, lodging, theater or sports tickets, stocks, bonds or other securities. | §274(j)(3)(A)(ii); Pub. 15-B |
| Purpose | Length of service or safety achievement. Performance, sales, holiday and spot awards are outside the rule. | §274(j)(3)(A)(i) |
| Presentation | Awarded as part of a meaningful presentation, under conditions that don't create a significant likelihood of disguised pay. | §274(j)(3)(A)(i) |
| Length of service | Not received during the employee's first 5 years, and not if they received a service award in the same year or any of the prior 4 years. | §274(j)(4)(B) |
| Safety | Not given to a manager, administrator, clerical employee or other professional employee, and not once safety awards have already gone to more than 10% of the other employees that year. | §274(j)(4)(C) |
| Annual limit | $400 per employee for awards that aren't qualified plan awards; $1,600 per employee for all awards together. | §274(j)(2); Pub. 15-B |
| Qualified plan award | Given under an established written plan that doesn't favor highly compensated employees, and the year's average plan award costs no more than $400 (nominal-value awards ignored). | §274(j)(3)(B) |
Worked example: one $500 watch, four outcomes
An employee reaches ten years of service and receives a watch in front of their team. It cost the company $500 and sells for $500. They have had no other achievement awards this year and no service award in the past four years. These are the calculator's default inputs; each step below changes one thing.
- No written award plan. Every test passes, but without a plan this is not a qualified plan award, so the limit is $400. The cost above the limit is $500 − $400 = $100, and so is the value above it. Result: $100 included in wages, $400 excluded.
- Switch “written plan” to Yes. With the plan's average award at $350, under the $400 cap, the watch is a qualified plan award and the limit is $1,600. Result: $0 in wages, all $500 excluded. Type $450 as the plan average instead and it drops back to step 1: an average over $400 disqualifies every award under the plan, not just the expensive ones.
- Back to no plan; the watch retails at $650 but you paid $500. Publication 15-B says to include the larger of the cost above the limit ($500 − $400 = $100) and the value above it ($650 − $400 = $250). Result: $250 in wages, $400 excluded.
- Same $500, given as a gift card. A gift card fails the tangible-property test before the limits are even considered. Result: $500 in wages. The table under the calculator shows the same comparison for whatever value you enter.
The limit is per employee per year, across all their achievement awards. If the same employee had already received a $300 non-plan safety award earlier in the year, only $100 of the $400 would be left: the $500 watch in step 1 would then put $400 into wages and exclude $100. Enter $300 in the first “already given” field to see it.
How the taxable part is worked out
| Step | Formula |
|---|---|
| Limit left | Not a qualified plan award: $400 − earlier non-plan awards. Qualified plan award: $1,600 − all earlier achievement awards. Never below $0. |
| Allowable deduction | the smaller of the award's cost and the limit left |
| Included in wages | the larger of (cost − deduction, capped at the value) and (value − deduction); never more than the value |
| Excluded | value − included in wages |
| Not an achievement award | the whole fair market value is wages, unless it is a non-cash de minimis benefit |
The checker evaluates one award at a time against what the employee has already received, which is how the annual limits work in practice: the earlier awards use up the limit first.
Where de minimis fits in
A holiday ham or a birthday bouquet is not an achievement award, but it can still be tax-free as a de minimis benefit: something of so little value, given so rarely, that accounting for it would be unreasonable. Publication 15-B lists “holiday or birthday gifts, other than cash, with a low fair market value” and flowers or fruit for outstanding performance as examples. There is no dollar threshold in the law. The IRS's own guidance for government employers notes that it has ruled in one particular case that items worth more than $100 could not be de minimis, and that when a benefit is too large, the whole value is taxable, not just the part above some amount. The checker uses that $100 only as a warning flag, not as a limit.
Cash and cash equivalents are the hard line. In Publication 15-B's words, gift cards and gift certificates, “no matter how little, are never excludable as a de minimis benefit.” A $10 coffee card is wages.
How to use the checker
- Pick the form and the reason. The questions that follow change with the reason: service awards ask about the 5-year rules, safety awards about job category and the 10% share.
- Enter cost and fair market value. They are often the same. Enter both when you bought below retail or paid for engraving.
- Answer the presentation and plan questions. If you are unsure whether your plan is a qualified one, run it both ways: the gap is the amount at stake.
- Add what the employee already received this year as achievement awards, at cost.
- Read the verdict, the amounts and the checklist. A crossed-out test names the reason the award fell outside the rule.
Nothing you enter leaves your browser. Copy results gives a plain-text summary to attach to a payroll query.
Where award programs trip over these rules
- Gift cards as service awards. The most common one. A points or gift card catalog only escapes the cash-equivalent rule if it can be used for nothing but items from a limited assortment you preselected.
- Five-year awards at five years. The statute excludes items “received during the recipient's 1st 5 years of employment”. Decide with your adviser how your anniversary dates fall against that wording before you budget the first milestone as tax-free.
- Plan averages creeping up. A few generous awards can lift the year's average above $400 and turn every award under the plan back into a $400-limit award.
- Safety awards to office staff. Managers, administrators, clerical and professional employees are excluded from safety awards entirely, however good the safety record.
- Forgetting earlier awards. The limits are annual and per employee. A safety award in March reduces what a service award in November can exclude.
Frequently asked questions
What is the IRS limit for employee achievement awards?
$400 per employee per year for awards that are not qualified plan awards, and $1,600 per employee per year for all achievement awards combined when they are given under a qualified written plan. Both figures are in 26 U.S.C. §274(j)(2) and IRS Publication 15-B (2026).
Can a gift card be a tax-free employee achievement award?
No. The exclusion covers tangible personal property only, and the law names cash, cash equivalents, gift cards, gift coupons and gift certificates as not qualifying. The one exception is an arrangement that only lets the employee choose an item from a limited assortment you preselected or preapproved.
Can a performance or sales award be an achievement award?
No. Only awards for length of service or safety achievement qualify. A non-cash performance gift may still be excluded as a de minimis benefit if its value is low and it is given only occasionally, such as flowers for outstanding performance.
What happens if an award goes over the limit?
Only part of it becomes wages. Publication 15-B says to include the larger of the cost above your allowable deduction (up to the award's value) and the value above that deduction, and to exclude the rest. A $500 watch against a $400 limit puts $100 into wages.
Is there a dollar limit for de minimis gifts?
Not in the law. The test is low value and infrequency. The IRS notes it has ruled in one particular case that items worth more than $100 could not be de minimis, and cash or gift cards are never de minimis at any amount.
Does this checker store what I enter?
No. All of the logic runs in your browser; nothing is sent or saved.
About the author
Maciej has worked in the digital gift card and rewards industry for over 5 years. For this tool he read the text of 26 U.S.C. §274(j), the achievement award and de minimis sections of IRS Publication 15-B (2026) and the IRS's de minimis fringe benefits guidance on October 28, 2026, turned each condition into one of the checker's tests, and checked every figure in the worked example against the checker's output.
- 26 U.S. Code §274(j), Employee achievement awards — $400 and $1,600 deduction limits, definition of tangible personal property, qualified plan award and $400 average-cost cap, 5-year service rule, safety-award 10% and job-category rules (Legal Information Institute, Cornell Law School): law.cornell.edu/uscode/text/26/274
- IRS, Publication 15-B (2026), Employer's Tax Guide to Fringe Benefits, “Achievement Awards” and “De Minimis (Minimal) Benefits” — excludable amounts, the larger-of rule for awards over the limit, gift cards never de minimis (page last reviewed April 30, 2026): irs.gov/publications/p15b
- IRS, “De minimis fringe benefits” (Federal, State and Local Governments) — the ruling that items over $100 could not be de minimis, and that an over-large benefit is taxable in full (page last reviewed June 28, 2026): irs.gov