Most incentive prizes are taxable as ordinary income to the recipient regardless of whether the award is in the form of cash, gift certificates, merchandise, or travel. Such awards are also subject to FICA (social security) and unemployment taxes. If the award is merchandise or travel instead of cash, the fair market value of the item must be included as income and reported on the employee's W-2 form. How do you measure fair market value? As a rule of thumb for merchandise, ...

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