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Policies and Procedures

Policy 1123 – Taxation of Employees’ Gifts, Prizes and Awards

Effective
May 7, 2010
Last Updated
November 15, 2015
Last Reviewed
November 15, 2015
Responsible University Officer
Director of Financial Reporting and Management Services
Responsible Unit
Financial Reporting and Management Services
University Controller

Policy Statement

Cash and non-cash items given to employees as gifts, prizes and awards that are paid with University funds (including state funds, grant funds, contract funds and gift funds) are subject to federal and state income tax and The Federal Insurance Contributions Act (FICA) tax.

Cash, Star Heels Awards, gift cards, and gift certificates with a specific dollar value are always taxable.

Reason for Policy

This policy was established to meet IRS regulations, including 26 U.S. Code § 132(e).

Exclusions

Gifts, prizes and awards are not subject to tax if the item qualifies as a "de minimis" fringe benefit, length-of-service award or safety achievement award.

De Minimis Fringe Benefit

Under IRS regulations, only non-cash or non-cash equivalent benefits can be classified as "de minimis." Cash and cash-equivalent items, like gift cards, are never excludable as a "de minimis" fringe benefit. In addition, a ‘de minimis’ benefit is (1) of small value, (2) infrequent, and (3) administratively impracticable to account for. As such, the University may reward an employee’s noteworthy, work-related accomplishments by presenting on an occasional or infrequent basis an item of personal property without tax consequences provided the value of the item does not exceed $100. The rationale is that these items of recognition constitute "de minimis fringe benefits" that are considered so small that accounting for them would be unreasonable or administratively impracticable. Examples of "de minimis fringe benefits" items in the context of employee gifts, prizes and awards include the following:

  • Occasional theater or sporting event tickets
  • Flowers, plaques and coffee mugs
  • Occasional snacks and meals

Any gift card or gift certificate awarded by a University unit/department to an employee constitutes “cash equivalents” under IRS regulations, and thus they are subject to federal and state income taxes and shall be reported to Payroll Services to be included on the employee’s Form W-2.

Length-of-service awards may qualify as a non-taxable benefit, provided:

  • The employee has at least five years of service with the University,
  • The employee has not received a length of service award within the last five years,
  • The awards are limited to a value of $400 per employee per year,
  • The awards are presented as part of a meaningful presentation,
  • The award cannot be cash , cash equivalent, vacation, meals, lodging, theatre or sports tickets, or securities, and
  • The awards are made under conditions and circumstances that do not create a significant likelihood of disguised pay.

For example, a department may provide an employee with an award of a framed photograph of the University Old Well or other historical site at a cost of $200 without reporting the benefit to Payroll Services as taxable wages, provided:

  • The employee has worked at the University for at least five years, and
  • The employee has not received a length-of-service award within the last five years.

Traditional retirement gifts valued at $400 or less are excluded from the five-year rule. For example, a department may give an employee a gold watch for retirement from the University having a value of up to $400 without tax implications even if the same employee has already received another length-of-service award within the last five years.Should an employee receive a length-of-service award that exceeds $400 in value, the excess amount shall be reported to Payroll Services and included as taxable wages on the employee’s Form W-2.

Safety Achievement Awards

Safety achievement awards that recognize an employee’s accomplishments for maintaining or promoting defined safety standards may qualify for exclusion from taxation provided:

  • The awards are limited annually to less than 10 percent of total employees,
  • The awards are not presented to managers, administrators, clerical or professional employees,
  • The awards are limited to $400 per employee per year, the awards are presented as part of a meaningful presentation,
  • The award cannot be cash, cash equivalent, vacation, meals, lodging, theatre or sports tickets, or securities, and
  • The awards are made under conditions and circumstances that do not create a significant likelihood of disguised pay.

For example, the facilities department may give a plaque that costs $250 to a worker who demonstrates excellence in maintaining safety standards. Should an employee receive safety achievement awards that exceed $400 in value during the calendar year, the excess amount shall be reported to Payroll Services and included as taxable wages on the employee’s Form W-2.

Special Situations

None

Procedures

  • 1123.1 - Reporting gifts, prizes and awards given to employees

Additional Information

Frequently Asked Questions

Q: Does a gift certificate qualify as "de minimis?"

A: No, cash and “cash equivalents” such as gift certificates do not qualify for the "de minimis fringe benefit" exception even if the cash or cash equivalent is for less than $100. In order to qualify as a a “de minimis” item, the gift card must only denote a personal property of minimal value, be provided infrequently, and be impractical to account for.

Q: Does this policy apply to students ?

A: Yes, if the student is paid wages through Payroll Services, they are considered an employee.

 

 

Related Data

Internal Revenue Service Publication 15-B, Employer's Tax Guide to Fringe Benefits

IRS Definition of “De Minimis” Internal Revenue Service Publication 535, Business Expenses, Chapter 2, Employees’ Pay

Office of Human Resources Work-Life Programs - Rewards and Recognition/

Contacts

SUBJECT CONTACT TELEPHONE FAX E-MAIL
Taxing Gifts, Prizes, Awards University Controller – Financial Reporting and Management 919-843-2694 919-962-4141 financialreporting@unc.edu

History

Revised:
November 15, 2015: Revised Exclusions section.
July 26, 2010

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