Myth 1: Gift certificates don't have to be taxed since they're not cash.

The IRS tax code section says that gift certificate or debit cards are generally not excludable “even if the same property or service acquired (if provided in kind) would be excludable.” That's why Toyota spends $1 million on Sears gift certificates each year and then pays an additional $920,000 in income taxes so the$1 million will not have to be taxed to employees.

Myth 2: As long as you keep it under $400 per person per year, the government lets you award whatever you want tax-free.

The tax code limits these “qualified award plans.” Awards must be tangible items, not cash or gift certificates. Also, awards for safety can only be awarded to 10 percent of your employees per year. That doesn't do you much good if you're trying to reward everyone (a fundamental ingredient in good incentive programs).

Myth 3: Logoed gifts are tax-free.

Logoed gifts under $4 in value are tax-free. Anything over that is taxable — whether it has a logo is immaterial.

SOURCE: Bill Sims Jr., president, Bill Sims Award of Excellence, Columbia, S.C. (