Qualified plan rules & limits
The dollar limitations applicable for income exclusion (and deduction) purposes vary, depending on whether the awards are made under a qualified plan. An employee achievement award plan must be in writing to be considered a qualified plan. It may not separate in favor of highly compensated employees regarding the plan or its actual results.
The annual dollar limit awarded to an individual employee on a qualified plan is $1,600 per year. This limit applies to the combined value of length–of–service and safety awards, as well as the value of any employee achievement awards made under plans that are not qualified. Additionally, the average cost of an award may not exceed $400. The average cost is determined by dividing the total cost of all achievement awards for the year by the number of awards presented, disregarding any awards of nominal cost.
A lower limit of $400 per year applies to awards made under a not qualified program. For nonqualified plan awards, the income exclusion and deduction limit are $400 per employee per year. The $1,600 and $400 deduction limits also apply in an employee achievement award made by a partnership. These limits apply to the partnership and each member.