Chapter 38 – Taxation of Gifts, Prizes, and Awards to Employees
As with all purchases utilizing University funds, expenditures for awards, gifts, and celebrations must be in accordance with federal and state laws, grant restrictions, and University policies and procedures. Departments must be aware of tax implications and limitations before awarding employees.
Employees who handle cash and gift certificates must follow UI cash handling procedures. See https://afr.fo.uiowa.edu/cash-handling.
- Cash awards. University-funded cash awards to employees constitute gross wages and are subject to payroll tax withholding. Procedures:
- Professional and scientific staff, merit staff, and faculty who are rewarded for extra-meritorious performance must be awarded through the HR Transaction System using the appropriate special compensation form type.
- Cash awards to student employees must be processed through MAUI Scholarship Workflow.
- Gift certificates. Gift certificates, including gift cards, gift vouchers, etc., are considered cash equivalents by the IRS and, therefore, are treated as cash payments.
Gift certificates may not be given to employees to reward performance unless they are given under a University-wide sanctioned award program. See procedures for rewarding performance under III-38.2a (cash awards).
Gift certificates given as research subject compensation do not fall under this Policy on Taxation of Gifts, Prizes, and Awards to Employees. They are included in the Research Subject Compensation Policy and Procedures. See https://gao.fo.uiowa.edu/grant-and-contract-management/general-administration/research-subject-compensation-policy-procedures.
- Gift certificate limitations:
- The cumulative value of all gift certificates given to a single employee must not exceed $100 within a calendar year (unless prior approval for an exception has been granted through the Office of the President).
- University-affiliated and nonprofit organizations are preferred vendors for gift certificates.
- Gift certificates should not be used to recognize employees' personal events, such as births, weddings, birthdays, or holidays.
- All gift certificates to University employees, regardless of the amount, must be reported to University Payroll annually.
- To facilitate the reconciliation of the number and value of the gift cards on hand:
- Departments must maintain a log and record, at a minimum, the date, name of vendor, and number of gift certificates purchased by certificate amount.
- Departments must maintain a list of gift certificates given to employees, including gift date, purpose of gift, certificate amount, employee name, and University ID.
- Departments must submit the list as an Excel file to University Payroll by November 15 for awards given from November 16 of the previous year to November 15 of the current year.
- Gift certificates to employees who are leaving the University must be reported to University Payroll as soon as the gift certificate is awarded so appropriate payroll tax withholding can occur.
- Gift certificate limitations:
- Non-cash awards. Non-cash awards (tangible personal property) given to employees are subject to taxation unless the annual value of all non-cash awards is less than $100 (amount considered de minimis) or the non-cash award meets one of the exceptions indicated in III-38.3. Procedures:
- Departments must track the value of all non-cash awards provided to employees.
- If the annual cumulative value of non-cash awards for an employee exceeds $100, departments must submit the entire list of all non-cash awards (not just the amount exceeding $100). Departments should complete all sections of the Taxable Items Worksheet for Payroll Services and send as an attachment to University Payroll by November 15 for awards given from November 16 of the previous year to November 15 of the current year. (Note: 100 percent of the value of the gift is taxable, not the amount in excess of $100.)
- If the annual cumulative value of non-cash awards to a terminating employee exceeds $100, departments must submit the information to University Payroll as soon as possible so appropriate payroll tax withholding can occur.
- Length-of-service and retirement awards. A non-cash length-of-service award or a retirement award may qualify as a non-taxable benefit provided all of the following requirements are met:
- 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 other than a de minimis non-cash award valued at less than $100, and
- the awards are presented as part of a meaningful ceremony and should not be determined based on an employee's classification.
- Safety achievement award. Safety achievement awards that recognize an employee's accomplishments for maintaining or promoting defined safety standards may qualify for exclusion from taxation provided all of the following requirements are met:
- the award is limited annually to less than 10 percent of total eligible employees,
- the award is not presented to managers, administrators, clerical, or professional employees, and
- the awards are presented as part of a meaningful ceremony.
Funding for gifts, prizes, and awards should be evaluated based on the department's current budget, the type of expenditure, and justification for the purchase. Non-general education fund resources are preferable, and departments should refer to Sponsoring Agency restrictions to ensure it is allocable and allowable before funding from grant sources.