The short answer is yes. The expensive part isn’t the tax — it’s finding out in January, after the winners have already packed.
Peak Performance · Incentive Travel Group LLC
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We plan programs; we do not file returns. Nothing below is advice for your specific program, and your treatment depends on your entity, your states, your mix of employees and partners, and anyone travelling from outside the US.
But we sit in the room when this goes sideways, and the pattern is consistent enough to write down. What follows is the shape of the problem, the four or five decisions your finance team actually has to make, and the point in the calendar where each one has to be made.
The starting position in US tax law is that prizes and awards are income at fair market value, whether they arrive as cash, merchandise or travel. A trip earned by hitting a number is compensation for services. The destination does not change that; the fact that nobody handed over money does not change it either.
The exceptions people hope for do not reach this far. The employee achievement award rules cover tangible personal property — an engraved watch can qualify, a week in Los Cabos cannot. The de minimis fringe rules are built for coffee and the occasional taxi, not for a resort week with a gala dinner. Assume the trip is reportable, then let your accountant tell you where the edges are.
That is the whole of the bad news. Everything after this is logistics — and logistics is something a finance team can plan for, as long as it hears about it in time.
For employees, the value of the trip is added to wages. It shows up on the W-2, and it carries federal income tax withholding, Social Security and Medicare, federal unemployment, and state income tax where you have it. Payroll treats it as a supplemental wage, which means the flat 22% federal withholding rate on the first $1 million of supplemental wages in a year is the usual mechanic.
For non-employees — dealers, distributors, independent reps, channel partners — the same value goes on a 1099 instead, once total compensation to that person reaches $600 for the year. No 1099 is required where the recipient is a corporation. Those winners then carry self-employment tax on it, which lands harder than most of them expect.
Then there is the category nobody budgets for: guests. If the program includes partners and spouses — and the good ones usually do — the value of the guest’s travel generally flows to the employee, not the guest, unless the guest’s presence has a genuine business purpose. A guest-inclusive program is a better program. It is also a bigger number on somebody’s W-2, and that should be priced in from day one.
Bruce Rickert · Peak Performance
Winners forgive tax. They do not forgive finding out about it from a payslip.
Fair market value is broadly what an unrelated buyer would pay for the same experience — not what appears on your invoice. Those are different numbers, and the gap is usually in your favour.
Your program cost includes things the winner never receives as a personal benefit: on-site staffing, program management, production, charters contracted at group rates, planner fees. A defensible valuation methodology can separate those from the traveller’s benefit. Ask your operator for a written FMV per traveller with the methodology attached, and keep it on file — the methodology matters as much as the number.
What does need a value attached is longer than most first drafts assume:
None of that is exotic. It is simply longer than the line the budget was approved against, which is why the valuation should be agreed with the operator before contracting rather than reconstructed in the new year.
Flights, rooms, excursions, the gala — every element on the itinerary carries a value that eventually lands on someone’s tax form.
Grossing up means the company covers the winner’s tax on the award so the reward arrives whole. It is the single most effective thing you can do to keep a program feeling like a reward, and it is the decision most often made too late.
The arithmetic surprises people, because the gross-up is itself taxable income — so covering the tax creates more tax, and the calculation iterates. Stack the 22% federal supplemental rate, 7.65% employee-side FICA, and state income tax where it applies, and the load on top of reported value commonly lands somewhere in the mid-thirties to mid-forties percent. On a program valued at $6,000 a head, that is real money and it belongs in the budget you take to the CFO, not in a variance you explain afterwards.
You do not have to gross up in full. Partial gross-ups are common and perfectly defensible. What is not defensible is leaving it undecided until the imputed income is already sitting in a payroll queue. Decide the policy, decide which pay period the value lands in — most programs use the cycle after wheels-down — and put it in writing at announcement.
Two questions get tangled together constantly: what the winner owes, and what the company can deduct. They are separate, and the second one is where the folk wisdom is worst.
The myth is that bolting a ninety-minute breakout onto the agenda converts a President’s Club trip into a deductible business meeting. It does not. Entertainment costs have been broadly nondeductible since the 2017 tax act, and most qualifying business meals sit at 50%. A genuine business meeting inside a program is a real thing with real documentation behind it — an agenda, attendance, a purpose — and it is not created by a slide deck written the week before.
The route that actually works is the boring one. Where the value is treated as compensation and reported properly, the compensation exception generally lets the employer deduct it as compensation. Reporting it correctly is what protects the deduction. Cutting corners on the reporting is what puts it at risk.
Federal supplemental withholding
1099 threshold per non-employee
Typical gross-up load, and up
Those are federal starting points, not your answer. State income tax stacks on top and varies enormously; the Social Security portion stops once a winner passes the annual wage base; high earners pick up additional Medicare.
And the rules move. From January 2026, the deduction for meals provided for the employer’s convenience was removed altogether — a change that has nothing to do with incentive travel but is a fair reminder that a position your finance team confirmed three years ago is not a position you can rely on this year.
Everything above is a general US position as of 2026, written by planners rather than tax advisers. Your treatment depends on your entity, your states, your workforce mix, and any travellers outside the US, where the rules look nothing like this. Take the program structure to your CPA or tax counsel and get the answer in writing before the announcement email goes out. It is a half-hour meeting that buys you a January you do not have to manage.
None of this needs to slow a program down. It needs to happen in the right order:
The programs that get renewed are not the ones that dodged the tax question. They are the ones where the answer was already written down before the first person qualified.
Bruce has designed sales incentive and channel reward programs for technology, manufacturing and energy clients since 2003, including multi-tier referral structures and President’s Club trips across four continents.
Five reasons an experience out-motivates money.
A real line-item breakdown for 100 travellers, start to finish.
The four numbers leadership asks for — captured before everyone flies home.
