Are employee incentive trips taxable?
The short answer is yes, the IRS considers employee incentive trips to be taxable compensation, just like salary, wages, and other employee incentives.
Just as with other employee incentives and awards, the fair market value of the trip -- which is the actual value of the trip excluding other miscellaneous fees -- is typically included in the employee's gross income for federal income tax purposes.
When employees are rewarded for meeting performance goals, the value of the trip is generally considered taxable income. That means that everything from airfare, accommodation, meals, and other travel-related costs are taxable. The trips’ value should be reported as taxable compensation, and the correct tax withholding should be applied.
However, there are some scenarios in which the IRS may give you the green light to deduct the cost of travel awards as a business expense -- for example, if the trip is deemed an employee achievement award. According to
The IRS Publication 15-A
, you can exclude a maximum of $400 for all the awards given to the same employee in a year. But, if the value goes over this limit, it becomes taxable compensation subject to federal income tax withholding and payroll tax obligations.