The following article provides insights on building a successful employee recognition program while responsibly managing employee rewards and its tax implications.
The following article provides insights on building a successful employee recognition program while responsibly managing employee rewards and its tax implications. Bucketlist employees are not legal or tax experts and can’t offer advice. We strongly recommend that you consult with your Finance team and accredited tax professionals to review all regulations in your local jurisdiction.
Employees - please check with your HR team on your company's tax policy with your program.
- Be sure to consult your finance or tax professionals, as legislation may be different in your tax jurisdiction.
- Like other employee perks or benefits, many governments treat cash and near-cash awards as a taxable benefit.
- Most tax jurisdictions see the income recognized as a taxable benefit as soon as the employee redeems their points for a gift or reward, not when the points are allocated.
- Usually the annual value of the rewards benefits are calculated for the tax year by the employer and Bucketlist provides reporting to help track this.
- Tax jurisdictions have different minimum limits and rules for calculating tax.
- Why most people don’t like to pay taxes, it is part of most business environments and unavoidable.
Why should we consult with our Finance or tax experts?
Like you ask your legal counsel to review business contracts, it is important to seek expert advice for considering taxation impacts to your company and employees. This is especially true when employees live in different tax jurisdictions. Like when you offer special perks and compensation for your employees, most governments view rewards and awards as potentially taxable. By gaining this valuable knowledge from an expert, your team will have an easier time preparing for the annual taxation period and your employees will understand any taxable implications.
We have some applicable links below to help your understanding.
Where can we find more information?
Rewards, bonuses, and gifts are usually considered taxable with only a few exceptions. Regardless whether cash or cash-equivalent items (e.g. gift cards, experiences or swag etc.), are considered taxable. Your company must report any taxable income on your employees' W-2 forms at the end of the taxable year.
- Internal Revenue Service (IRS) website
- IRS Employer's Tax Guide to Fringe Benefits For use in 2023 for the latest guidance (NOTE: on page 9, refer to De Minimis (Minimal) Benefits for details on smaller annual amounts)
Cash or near-cash gifts or awards are considered taxable in Canada. This includes employer-reimbursed items as well as items that can easily be converted to cash, gift cards, prepaid credit cards. Depending on whether an award or reward, CRA guidance is important to determine if taxable.
In Canada, Bucketlist rewards would be considered a taxable benefit. Any amounts above $500/year/employee are treated as taxable income (i.e. taxed at a higher rate).
- Events that cost less than $100 per person create an exception (non-taxable)
- Every 5 years an employee can be awarded up to $500 in reward value tax free for years of service
- Canada Revenue Agency (CRA) website
- CRA Gifts, awards, and long-service awards for a handy reference in various situations
- CRA What is a taxable benefit? webpage for addition guidance in Canada
- These sites are for only reference purposes - discuss with your Finance team and tax experts for the best advice
- ADP: Tax Guides and Forms
- Engage Advisors: The Tax-Free Ways to Reward Employees
- The Tax Advisors: The Tax Consequences of Point-Based Employee Reward Programs
- Wagepoint: An Easy Guide to Employee Gift Giving in the US and Canada
How should we communicate with our employees?
Generally, most gifts given to employees (including rewards given through Bucketlist) are considered taxable benefits. It is very similar to other perks that may be offered to employees. This means that rewards are treated as additional income, and their value should be included in the employee's year-end tax forms. Obviously, these taxation rules are not from your company nor from Bucketlist. We all operate under the jurisdiction of a taxable authority (or many) so we recommend you communicate to your employees and avoid surprises for any personal tax implications.
While every client has their own approach, some of our clients request a disclaimer to be added to their platform to help inform employees on potential taxable benefits. If you are interested in this, please speak with a member of the Bucketlist team.
How do other Bucketlist clients generally manage tax implications?
Bucketlist clients have various approaches to handle the tax implications of their employee rewards programs.
- Some do not deduct anything based on points redeemed and rely on standard exemptions like de minimis benefits - creating a tax-free scenario.
- However, the majority of clients treat all redeemed points as taxable and opt for a straightforward once-a-year payroll deduction.
- In some cases, clients might "gross up" the reward value to cover the employee's tax impact, ensuring the employee receives the full reward value without any deduction. For example, if an employee redeems $100 worth of points at a 30% tax rate, the company might increase the reward value to $130 and withhold the extra $30 for taxes.
Please discuss options with your Bucketlist team member.
What other options are available with Bucketlist?
In Bucketlist, you have the flexibility to assign a value to points, define who can give points, and determine the types of rewards available in exchange for earned points. To avoid or reduce tax implications, consider offering rewards with zero cash value, such as:
- Lunch with the CEO
- An extra day off*
- A reserved parking spot for a week in your company lot
- Company swag like t-shirts and mugs*
- The option to donate points to a charitable organization
*Ensure you seek guidance from your Finance or tax expert for any of these options and then speak to a Bucketlist team member for more details.
How do charitable donations impact taxable benefits?
When employees use their Bucketlist points to make charitable donations offered by our gift card provider, Tango Rewards (offered in USD currency only in limited countries), the employee will receive an email notification confirming their donation. This email may be used as a tax receipt.
If the company adds their own charities to the Bucketlist platform and donates the points on behalf of the employee. In such cases, the employee does not receive cash, eliminating tax implications. Furthermore, the company may be eligible for a tax deduction for the donation. The employee simply requests the company to direct reward points to a charitable organization they resonate with.
Keep in mind, these are some examples of how Bucketlist clients manage tax implications of their program. Your finance or legal team may have their own approach and preferences. Bucketlist can support along the way through guidance and reporting.
How can Bucketlist help track redemptions and taxable income?
Our reporting makes taxation easy for you to reconcile for accounting purposes. Company Admins (or Finance teams) can easily generate reports in our Bucketlist platform at any time, specifically the Redemptions report. This report can be sent to your Finance department to use for compliance with any applicable tax laws.
The Redemptions report will show:
- Item name
- Points used
- Price of item in $
- When it was redeemed
- Who redeemed it
For any help with reporting, please contact your Customer Onboarding Manager or Customer Success Manager at Bucketlist.
As mentioned above, most tax jurisdictions consider that within the Bucketlist environment, points do not have a dollar value until they are redeemed. Therefore, if an employee leaves with remaining points, they hold no value and do not trigger tax implications. However, when employees redeem points for a reward, in most cases, the value should be considered a taxable benefit and accounted for as income for the employees.
The most crucial aspect is to ensure that your employees are well-informed about the tax implications with the program. Include this information in your new employee onboarding process and explain that perks, such as gift cards, may be treated as income and subject to taxes.
Finally, remember that Bucketlist is a recognition-first platform, prioritizing meaningful employee recognition. If you are concerned about the tax implications of a rewards program, Bucketlist allows you to disable the rewards option while still benefiting from the platform's core benefits.