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Vacation award trip - timing of taxable event

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flossy21

Member
State of Virginia. Employee earns an award trip for surpassing a sales goal in calendar year 2018. The actual trip is in February of 2019. The employer booked the flights and paid the resort in calendar year 2018. The employer is including the cost of the award trip as taxable income on the Employee's 2018 W2. I think this is incorrect based on Publication 525 (see below) language and link.

1.) Should the income be reflected on the employee's 2018 or the 2019 W2?

2.) What is the best way to get a confirmation from the IRS regarding this question?


"Bonuses and awards. Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. These include prizes such as vacation trips for meeting sales goals. If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. However, if your employer merely promises to pay you a bonus or award at some future time, it isn’t taxable until you receive it or it is made available to you."

Publication 525 2017 (2018 version not available yet)
 


LdiJ

Senior Member
State of Virginia. Employee earns an award trip for surpassing a sales goal in calendar year 2018. The actual trip is in February of 2019. The employer booked the flights and paid the resort in calendar year 2018. The employer is including the cost of the award trip as taxable income on the Employee's 2018 W2. I think this is incorrect based on Publication 525 (see below) language and link.

1.) Should the income be reflected on the employee's 2018 or the 2019 W2?

2.) What is the best way to get a confirmation from the IRS regarding this question?


"Bonuses and awards. Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. These include prizes such as vacation trips for meeting sales goals. If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. However, if your employer merely promises to pay you a bonus or award at some future time, it isn’t taxable until you receive it or it is made available to you."

Publication 525 2017 (2018 version not available yet)
In my opinion it is taxable income for 2018 because the employer paid for it in 2018 therefore making it available to you. Its no longer a promise, its a reality.
 

flossy21

Member
In my opinion it is taxable income for 2018 because the employer paid for it in 2018 therefore making it available to you. Its no longer a promise, its a reality.
It sounds logical but what happens if the employee leaves the employer before the trip in February or if the resort burns down and the employer decides to change the venue which costs more/less than the original venue. Would the employer then need to issue a corrected W2 or ?
 

flossy21

Member
Does the employee have possession of the tickets and or vouchers in their name at this time? 12/31/18
Great question. The airline tickets are virtual/online and the employee has the ability to access them via the airline website. The employee does not have possession or access to the tickets/reservation for the resort.
 

PayrollHRGuy

Senior Member
Great question. The airline tickets are virtual/online and the employee has the ability to access them via the airline website. The employee does not have possession or access to the tickets/reservation for the resort.
They're in the employee's name. I say 2018.
 

LdiJ

Senior Member
It sounds logical but what happens if the employee leaves the employer before the trip in February or if the resort burns down and the employer decides to change the venue which costs more/less than the original venue. Would the employer then need to issue a corrected W2 or ?
A correction would have to be done, but the employer could do that (if the correction happens after today) by increasing or reducing 2019 income. Why are you so concerned about this? What is prompting your concern?
 

flossy21

Member
A correction would have to be done, but the employer could do that (if the correction happens after today) by increasing or reducing 2019 income. Why are you so concerned about this? What is prompting your concern?
Thanks for the reply. I'm the employee and I'd prefer to defer the taxable event to 2019.
 

LdiJ

Senior Member
Thanks for the reply. I'm the employee and I'd prefer to defer the taxable event to 2019.
That is not an answer. If you do not want to answer the question, that is fine, but that will limit the advice you will get.
 

flossy21

Member
That is not an answer. If you do not want to answer the question, that is fine, but that will limit the advice you will get.
I'm sorry. I'm not trying to be difficult or vague. As I said, I am the employee in this scenario and my employer is putting this on my 2018 W2. I think it belongs on the 2019 W2 because I won't receive the trip until 2019. I can see both sides but it seems premature to force me to pay taxes on a benefit I won't receive until Feb 2019. The timing of the expense to the employer is irrelevant to my income. Ideally I'd like to pay the tax as part of 2019 income rather than 2018 but it seems that is not going to be possible.
 

LdiJ

Senior Member
I'm sorry. I'm not trying to be difficult or vague. As I said, I am the employee in this scenario and my employer is putting this on my 2018 W2. I think it belongs on the 2019 W2 because I won't receive the trip until 2019. I can see both sides but it seems premature to force me to pay taxes on a benefit I won't receive until Feb 2019. The timing of the expense to the employer is irrelevant to my income. Ideally I'd like to pay the tax as part of 2019 income rather than 2018 but it seems that is not going to be possible.
Even if you could persuade your employer to handle it differently (and the employer really should not agree to it) you are not articulating any real reason. "I prefer" is not a persuadable reason. "I prefer because" with a list of specific reasons why that is your preference might be helpful, but again, the employer is doing it the proper way.
 

flossy21

Member
Even if you could persuade your employer to handle it differently (and the employer really should not agree to it) you are not articulating any real reason. "I prefer" is not a persuadable reason. "I prefer because" with a list of specific reasons why that is your preference might be helpful, but again, the employer is doing it the proper way.
I prefer to defer the taxable event until 2019 because it will add about $4,000 to my taxable income which will be about $1,200 to $1,500 additional tax at my marginal tax rate.

It seems like the IRS language in Pub 525 is clear, "However, if your employer merely promises to pay you a bonus or award at some future time, it isn’t taxable until you receive it or it is made available to you."

I haven't received the trip and it can't really be made available until I actually get on the plane.

Again, I can see both sides of the argument but it seems like I am going to just have to pay a year earlier than I had hoped.
 

LdiJ

Senior Member
I prefer to defer the taxable event until 2019 because it will add about $4,000 to my taxable income which will be about $1,200 to $1,500 additional tax at my marginal tax rate.

It seems like the IRS language in Pub 525 is clear, "However, if your employer merely promises to pay you a bonus or award at some future time, it isn’t taxable until you receive it or it is made available to you."

I haven't received the trip and it can't really be made available until I actually get on the plane.

Again, I can see both sides of the argument but it seems like I am going to just have to pay a year earlier than I had hoped.
This is not a "both sides" argument. You are simply wrong. The vacation has been paid for therefore it has been made available to you. If the employer had not paid for it yet you would have an argument in your favor, but that is not the case.
 

flossy21

Member
This is not a "both sides" argument. You are simply wrong. The vacation has been paid for therefore it has been made available to you. If the employer had not paid for it yet you would have an argument in your favor, but that is not the case.
OK. Thanks.
 
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