My wife received ten yr. award. Now co. wants her to pay taxes out of it.

My wife works for Atlantic Salmon of Maine, and they recently gave an award of $1,500 (to be used towards a trip) to each person who had been with the company for 10 yrs. Some had used theirs before 2001. My wife has been planning a trip for several months, but nothing is finalized. She happened to go into a local store (we live in a very small town) and found out that the company is not going to give them $1,500, but each employee will receive what is left after taxes. My wife hit the ceiling! Can they legally do this? Shouldn't the company take the brunt of any loss? Those that received their $1,500 in 2000, received the full amount. The company claims the IRS will not allow them to give the full amount of $1,500.

Can anyone help?

Yes, they can do this, and no they shouldn't take the brunt of it... unless you want that additional gift of paid taxes to be included as taxable income. The IRS is very picky about stuff like this.

See, those that received the full $1500 in 2000 will find it included in their W-2's taxable income amount. If the employer didn't "gross up" and withhold taxes, their W-2 will report the $1500 and they'll pay the income tax on it when they file their tax return. That's the same net effect as if they'd withheld the taxes and given them only, say, $1080 ($1500 minus 28% tax).

When my employer gives a $1500 gift certificate, for example, they "gross up" the amount to include taxes and withhold those from my next paycheck. In other words, they give me a $1500 certificate, include $2083 in my taxable income and withhold $583 in taxes.