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• It is awarded as part of a meaningful pre- sentation. • It is awarded under conditions and circum- stances that don't create a significant likeli- hood of disguised pay. Tangible personal property. An award isn't an item of tangible personal property if it is an award of cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than ar- rangements granting only the right to select and receive tangible personal property from a limi- ted assortment of items preselected or preap- proved by you). Also, tangible personal prop- erty doesn't include vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. Length-of-service award. An award will qualify as a length-of-service award only if ei- ther of the following applies. • The employee receives the award after his or her first 5 years of employment. • The employee didn't receive another length-of-service award (other than one of very small value) during the same year or in any of the prior 4 years. Safety achievement award. An award for safety achievement will qualify as an achieve- ment award unless one of the following applies. 1. It is given to a manager, administrator, clerical employee, or other professional employee. 2. During the tax year, more than 10% of your employees, excluding those listed in (1), have already received a safety ach- ievement award (other than one of very small value). Deduction limit. Your deduction for the cost of employee achievement awards given to any one employee during the tax year is limited to the following. • $400 for awards that aren't qualified plan awards. • $1,600 for all awards, whether or not quali- fied plan awards. A qualified plan award is an achievement award given as part of an established written plan or program that doesn't favor highly com- pensated employees as to eligibility or benefits. A highly compensated employee is an em- ployee who meets either of the following tests. 1. The employee was a 5% owner at any time during the year or the preceding year. 2. The employee received more than $120,000 in pay for 2017. You can choose to ignore test (2) if the em- ployee wasn't also in the top 20% of employees ranked by pay for the preceding year. An award isn't a qualified plan award if the average cost of all the employee achievement awards given during the tax year (that would be qualified plan awards except for this limit) is more than $400. To figure this average cost, ig- nore awards of nominal value. Deduct achievement awards, up to the max- imum amounts listed earlier, as a nonwage business expense on your return or business schedule. You may not owe employment taxes on the value of some achievement awards you provide to an employee. See Pub. 15-B. Bonuses You can generally deduct a bonus paid to an employee if you intended the bonus as addi- tional pay for services, not as a gift, and the services were performed. However, the total bonuses, salaries, and other pay must be rea- sonable for the services performed. If the bonus is paid in property, see Property, later. Gifts of nominal value. If, to promote em- ployee goodwill, you distribute merchandise of nominal value or other de minimis items to your employees at holidays, you can deduct the cost of these items as a nonwage business ex- pense. See Pub. 15-B for additional information on de minimis fringe benefits. If you provide food to your employees, your business deduc- tion may be limited; see Meals and lodging, later. Education Expenses If you pay or reimburse education expenses for an employee, you can deduct the payments if they are part of a qualified educational assis- tance program. Deduct them on the “Employee benefit programs” or other appropriate line of your tax return. For information on educational assistance programs, see Educational Assis- tance in section 2 of Pub. 15-B. Fringe Benefits A fringe benefit is a form of pay for the perform- ance of services. You can generally deduct the cost of fringe benefits. You may be able to exclude all or part of the value of some fringe benefits from your employ- ees' pay. You also may not owe employment taxes on the value of the fringe benefits. See Table 2-1 in Pub. 15-B for details. Generally, no deduction is allowed for activi- ties generally considered entertainment, amusement, or recreation, or for a facility used in connection with such activity. However, you may deduct these expenses if the goods, serv- ices, or facilities are treated as compensation to the recipient and reported on Form W-2 for an employee or on Form 1099-MISC for an inde- pendent contractor. If the recipient is an officer, director, beneficial owner (directly or indirectly), or other “specified individual” (as defined in section 274(e)(2)(B) and Regulations section 1.274-9(b)), special rules apply. See section 274(e)(2) and Regulations sections 1.274-9 and 1.274-10. Certain fringe benefits are discussed next. See Pub. 15-B for more details on these and other fringe benefits. Meals and lodging. Generally, you can de- duct 50% of certain meal expenses and 100% of certain lodging expenses provided to your employees. If the amounts are deductible, de- TIP duct the cost in whatever category the expense falls. Deduction limit on meals. You can gener- ally deduct only 50% of the cost of furnishing meals to your employees. However, you can deduct the full cost of certain meals; see sec- tion 274(n)(2) for more information. For exam- ple, you can deduct the full cost of the following meals. • Meals whose value you include in an em- ployee's wages. • Meals you furnish to your employees as part of the expense of providing recrea- tional or social activities, such as holiday parties or annual picnics, when made pri- marily for the benefit of your employees other than employees who are officers, shareholders or other owners who own a 10% or greater interest in your business, or other highly compensated employees. • Meals you’re required by federal law to fur- nish to crew members of certain commer- cial vessels (or would be required to fur- nish if the vessels were operated at sea). This doesn't include meals you furnish on vessels primarily providing luxury water transportation. • Meals you furnish on an oil or gas platform or drilling rig located offshore or in Alaska. This includes meals you furnish at a sup- port camp that is near and integral to an oil or gas drilling rig located in Alaska. P.L. 115-97 changed the rules for the deduction of food or beverage expen- ses that are excludable from employee income as a de minimis fringe benefit. For amounts incurred or paid after 2017, the 50% limit on deductions for food or beverage expen- ses also applies to food or beverage expenses excludable from employee income as a de mini- mis fringe benefit. While your business deduc- tion may be limited, the rules that allow you to exclude certain de minimis meals and meals on your business premises from your employee's wages still apply. See Meals in section 2 of Pub. 15-B. Food and beverage expense incurred to- gether with entertainment expenses. P.L. 115-97 changed the rules for the deduction of business entertainment expenses. For amounts incurred or paid after 2017, no business deduc- tion is allowed for any item generally consid- ered to be entertainment, amusement, or recre- ation. As discussed earlier, you can deduct 50% of the cost of business meals. If food and beverages are provided during or at an enter- tainment activity, and the food and beverages are purchased separately from the entertain- ment, or the cost of the food and beverages is stated separately from the cost of the entertain- ment on one or more bills, invoices, or receipts, you may continue to deduct 50% of the busi- ness meal expenses. However, if you purchase food and beverages together with entertain- ment expenses and the cost of the food and beverages isn't stated separately on the in- voice, the cost of the food and beverages are also an entertainment expense and none of the expenses are deductible. For more information, including details about four additional require- ments that must be met for a business meal to be deductible, see Notice 2018-76, 2018-42 CAUTION ! Chapter 2 Employees' Pay Page 9