My employer has a recognition system based on points. Just like Air Miles and other reward systems, we get to cash in our points for various types of goods and services. What hadn’t occurred to me until recently was the tax implications.
When we cash in our points, the value of our rewards becomes a taxable benefit. So, for someone in a 50% marginal income tax bracket, getting a $100 reward actually costs $50 in additional income taxes. This is still a reasonably good deal, but the taxes have some implications.
Just because a reward costs the company $100 doesn’t necessarily mean it’s worth $100 to me. Fortunately, we have a wide range of reward choices, so it’s likely that I’ll be able to find things I actually want.
However, these points have expiry dates, and there is no guarantee the good selection of rewards will remain. Normally, if you have points that are soon to expire, you’d cash them in for something, even if that something isn’t exactly what you want. Not so in this case. If I have to pay $50 in taxes when I cash in my points, the reward had better be worth at least $50 to me. Otherwise, I’d be better off letting the points expire.
All this feels like looking a gift horse in the mouth. But taxes have a way of taking the fun out of just about anything.