|NYC welcomes Santa like only NYC can|
Tis the season for many organizations to be clearing out their stash of “just in time” rewards (e.g. performance points, recognition points, award points, etc.) that can’t be carried over into the new calendar year. Receiving these points gives you the right to exchange the points for some type of gift card or other good worth a dollar value equal to the number of points you have available to redeem.That sounds great, right? Who doesn’t love getting free stuff? The problem is that these rewards aren’t exactly free, and by that I mean they get taxed just like all of your other paychecks.
Once you redeem points for reward points that triggers a transaction that allocates additional taxable income to you and withholds taxes at the appropriate level from your next paycheck. For example, if you are in the 30% income bracket (for simplicity we’ll assume this is how much tax is withheld also) and you redeem points for a $100 gift card, your next pay advice will show $100 in additional income and $30 in payroll tax withholding (and your check will be $30 less than usual). In other words, you only net $70 on the deal. The same
is should be true if your boss hands you a gift card purchased by the company. Generally, as in this example, the dollar amounts are negligible but, in theory, if someone collected enough points (I don’t have that kind of discipline) and redeemed them for a larger gift that costs thousands of dollars, the tax repercussions could be significant. I hate to be the bearer of bad news, but wouldn’t you rather now how than when your paycheck comes up a little bit short?
I guess you can say that Uncle Sam is Mr. Grinch’s silent partner that you don’t hear about until January (April for us who like to procrastinate) rolls around…but he’s always there.