Performance bonuses and achievement awards, both in monetary form and in the form of goods or services, are included in your taxable employee compensation. If you receive goods or services, their fair market value must be included in income. Bonuses and awards are not taxable until you actually receive them or they are available to you.
Employee Achievement Awards
Special tax rules apply to tangible personal property that an employer gives as length-of-service awards or safety achievement awards. You can exclude the value of these awards up to the amount of their cost to your employer, which cannot be more than $1,600 per year for all the awards you receive. If the awards are not qualified plan awards, the limit on the amount that can be excluded is $400 per year. In order to be considered as qualified plan awards, your employer must have an established written plan or program that does not favor highly compensated employees.
The exclusion does not apply for awards of cash or cash equivalents, gift certificates, or intangible property such as vacations, lodging, meals, tickets to cultural or sporting events, or stocks, bonds, or other securities.
Cost of Living Allowances and Differentials
Cost of living allowances are included in your taxable employee compensation unless you are a federal civilian employee or a federal court employee stationed in Alaska, Hawaii, or outside the United States. Overseas differentials, which are amounts paid in addition to your base salary or wages as an incentive to take a foreign assignment, for example, are also taxable employee compensation.
Sick Pay
Amounts you receive from your employer for sick pay are included as part of your salary or wages. This amount is included in box 1 of your W-2.
Any sick pay benefits you receive from any of the following third parties must also be included in your taxable income:
A welfare fund
A state sickness or disability fund
An association of employers or employees
An insurance company, if your employer paid for the plan
The cost of accident or health insurance coverage paid by your employer is not taxable to you, but the benefits you receive from that insurance may be taxable.
If you receive sick pay benefits from an accident or health insurance policy for which you paid the premiums yourself, the benefits are not taxable.