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Policies and Procedures

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

Effective
May 7, 2010
Last Updated
July 26, 2010
Responsible University Officer
Director of Financial Reporting and Management Services
Responsible Unit
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, gift funds) are subject to federal and state income tax and The Federal Insurance Contributions Act (FICA) tax.

Reason for Policy

To meet IRS regulations.

Exclusions

Non-cash items are not subject to tax if the item qualifies as a "de minimis" fringe benefit, length-of-service award, or safety achievement award.

The University may reward an employee’s noteworthy, work-related accomplishments by presenting an item of tangible personal property without tax consequences provided the value of the item, in addition to other gifts, prizes or awards presented throughout the calendar year to the employee, does not exceed $40. 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" items include Star Heels awards, gift certificates, or gift cards that meet all of the following criteria:

  • inscribed with the recipient’s name,
  • non-transferable, and
  • cannot be redeemed for cash.

Gifts certificates to UNC Student Stores do not bear the recipient’s name but will be deemed to meet the criteria listed above provided the recipient is required to produce identification in order to redeem the UNC Student Stores certificates.

For example, a department may award a $25 gift certificate (that is inscribed with the recipient’s name, is non-transferable, and cannot be redeemed for cash) to chosen employees based on the criteria of their departmental recognition program. If the cost of this benefit, in addition to other gifts, prizes or awards given to that employee during the year does not exceed $40, the benefit does not need to be reported to Payroll Services as wages subject to income taxation. However, items of recognition given on an annual basis that exceed $40, and that do not otherwise meet the length of service or safety achievement criteria provided elsewhere in this section, shall be reported to Payroll Services and included as taxable wages 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 $400 per employee per year,
  • the awards are presented as part of a meaningful presentation, 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 of $400 or less are excluded from taxation if they meet the length of service award criteria mentioned above. 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 if the length-of-service criteria is met.

Should an employee receive a length-of-service award that exceeds $400, the excess amount shall be reported to Payroll Services and included as taxable wages on the employee’s Form W-2.

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 and professional employees,
  • the awards are limited to $400 per employee per year, the awards are presented as part of a meaningful presentation, 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 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 $40.00 gift certificate that can be redeemed for cash qualify as "de minims?"
A: No, only gift certificates that do not exceed $40.00 and are inscribed with the recipient's name, non-transferable, and cannot be redeemed for cash qualify as "de minims."

Related Data

Internal Revenue Service Publication 15-B, Employer's Tax Guide to Fringe Benefits
Internal Revenue Service Publication 535, Business Expenses, Chapter 2, Employees' Pay

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:
July 26, 2010