I just finished the incentives for 2002 at my company. One thing just ouccred to me. In past years they only gave cash. (not a bad thing eh?) But this year in addition to cash, they gave a trip to Rome and some hotel bonus points.
Of course they took the taxes out for the cash before they issued the check (along with 401K). But what is the tax obligation for the Trip and the points. If you convert the hotel program to airline miles do you pay tax? You can also trade the hotel points for American Express Gift Cards. So are these tax free gifts?
I believe the trip is taxable as ordinary income, as is any noncash compensation. I think it may be the market value of the trip, but possibly actual cost to the company, a tax person would have to tell you that.
The hotel points sounds a little murkier, but the IRS is very aggressive about taxing this type of thing so it might be. I don’t think point earned by flying at company expense are taxable, but if they just hand you points, and those points are easily convertible into a negotiable instrument (AmEx gift cards), then it’s likely taxable.