Gifts, Prizes, Awards and Gift Cards
Emerson College complies with all federal and state tax regulations concerning the tax treatment of gifts, prizes, awards and gift cards to faculty, staff, students and non-employees.
Reason for the Policy
This policy applies to all faculty, staff, students and non-employees and is intended to clarify the circumstances when gifts, prizes, awards and gift cards may be appropriate, procedures for submitting recipient information to Finance, and the corresponding tax treatment.
Award/gift may recognize length of service, exceptional performance, special achievement, employee recognition etc. (Note: awards/gifts to students are taxable unless they qualify as scholarships and are directly applied toward tuition, required fees, books, and equipment.)
Cash equivalent award/gift is any item which can be used to “purchase” merchandise or which can be easily converted to cash. Under IRS code, this includes gift cards and gift certificates. Under IRS code, cash and cash equivalent fringe benefits (i.e. gift cards/certificates) constitute income to the recipient, no matter how small, and are taxable and never excludable as a de minimis benefit.
De minimis benefit is any property or service provided to an employee that has so little value that accounting for it would be unreasonable or administratively impractical. Examples of de minimis benefits include the following:
- Holiday gifts, other than cash or gift cards/certificates, with a low fair market value.
- Occasional meals.
- Occasional parties for employees.
- Occasional tickets for entertainment or sporting events.
- Occasional coffee, donuts and soft drinks.
- Special circumstances, such as flowers, fruit, books, or similar items during an illness, family death or for individual recognition.
An essential element of a de minimis benefit is that it is occasional or unusual in frequency. It also must not be a form of disguised compensation. The IRS has ruled previously in a particular case that items with a value exceeding $100 could not be considered de minimis, even under unusual circumstances. See IRC Section 132(a)(4) and Section 132(e)(1).
Employee – Emerson College faculty, staff, and student workers.
Non-employee – Emerson College students (non-workers), independent contractors, honorarium recipients, non-Emerson raffle winners (e.g. WERS).
Non-transferable gift certificate for tangible personal property is the only type of gift certificate that qualifies as a non-cash equivalent and is non-taxable. Such gift certificates must confer only the right to select and receive tangible personal property from a limited array of such items pre-selected by the College, and must not convey cash or cash for the difference between the purchase price and the value of the gift certificate.
Prize - recognizes performance as part of a judged competition, e.g. best design, highest score, academic achievement, etc. or winnings from a raffle or drawing. If an employee wins a prize that is for a reason other than related to employment and the contest, program or raffle is open to the general public, then the prize amount will be treated as 1099 income. Student recognition by College departments for academic achievement is considered a taxable prize by the IRS.
Tangible award/gift is any non-cash item provided to an employee in recognition of special circumstances (e.g. illness, recognition, etc.) Examples include: flowers, books, trophies, plaques, event tickets, food, Emerson logo items, memento items, pens, pennants, or similar items. These items are generally non-taxable provided they are provided infrequently and the cumulative value is less than $100 in a taxable period.
Taxable period is the calendar year, i.e. January 1 through December 31.
Statements of Elaboration of Policy
The general tax rule under Internal Revenue Code Section 61 is that all forms of compensation are subject to income tax unless specifically excluded by the tax code. In almost all circumstances, gifts, prizes and awards are included in the recipient’s gross income, if the gift is paid for using College funds. Other than for the limited exceptions noted below, if the recipient is an Emerson faculty, staff, or student employee (or their spouse), the gift, or award is considered supplemental wages and must be processed through the payroll system with appropriate federal, state, and FICA/Medicare taxes withheld. The gift, or award is then included in the recipient’s Form W-2, Wage and Tax Statement or Form 1042-S if they are a nonresident alien. If an employee wins a prize that is for a reason other than related to employment and the contest, program or raffle is open to the general public, then the prize amount will be treated as 1099 income. The recipient will receive a Form 1099-MISC on any winnings totaling over $600.00 in a calendar year.
For non-employees, the prize or award can be processed without tax withholding* (except for payments to non-U.S. citizens (non-resident aliens) which may be subject to withholding – see Note below) but is still considered income to the recipient. Such payments are reported as taxable income to the recipient using Form 1099-MISC, Miscellaneous Income. Accounts Payable will require a W-9 be provided before the award is processed.
For students, if the prize or award is related to employment services performed for the college (e.g., outstanding student worker in a department), the prize or award must be processed as supplemental wages via Payroll, with appropriate income taxes withheld. However, if the award is not related to services performed as an employee (e.g. academic achievement), it is still taxable income to the recipient and must be reported on Form 1099-MISC, but it is not subject to withholding.*
All awards, regardless of dollar amount, must have a valid, documented business purpose and must comply with all College purchasing, expense and approval procedures.
*Note: Non-US citizens, including international student workers, may be subject to additional tax rules depending on circumstances and treaty status. Where applicable, taxable income will be reported on Form 1042-S and may be subject to 14-30% withholding. Please contact AP/Payroll in advance to discuss specific tax impact.
GIFT, PRIZE OR AWARD FORM
All calendar year tangible award/gift of $100 or more, individually or in the aggregate, all cash equalivent gifts, (including gift cards regardless of amount) and all prizes directly charged to your budget, must be reported on the Gift, Prize or Award form and submitted to Accounts Payable or Payroll (see table below). If purchased with a Pcard, a copy of the form should be uploaded into the Workday expense report AND sent to Accounts Payable or Payroll separately. (Please note, participants in a research study have different reporting requirements. Please contact Finance for additional information).
- Certain employee achievement awards (items of tangible personal property) if awarded under a college-wide length-of-service or other achievement program may be excludable from gross income. Gift cards are always taxable income to the employee and do not qualify under this exclusion.
- If a gift is paid for by an individual or group using their personal funds and not reimbursed by the college, then that gift is not taxable and reportable by the college.
A gross up is when you reimburse the individual for the taxes being withheld. For gifts and awards to employees, the department may request that the Payroll department gross up the value of the gift or award so that the net payment is the desired prize or award amount. The department will be charged the additional amount for all the employee’s federal and state taxes.
SUMMARY OF TAX TREATMENT
|TYPE||DESCRIPTION||TAXABLE||REPORT ON GIFT/PRIZE AWARD FORM|
|Cash equivalent award/gift||Cash, gift card and gift certificates.||Yes regardless of amount.||Yes
Send to Payroll for all Emerson Employees
Send to Accounts Payable for non-Emerson Employees
|Non-transferable gift certificate for tangible personal property||Tangible personal property from a limited array of items pre-selected by the College; no cash for the difference between the purchase price and the value of the gift certificate.||No||No|
|Tangible award/gift||Any non-cash item provided to an employee in recognition of special circumstances (e.g. illness, recognition, etc.) Some examples: flowers, books, trophies, plaques, Emerson logo items. (Does not include tangible awards as part of a college-wide length of service award)||Only if cumulative value >$100 in any calendar year||Yes
Send to Payroll for all Emerson Employees
Send to Accounts Payable for non-Emerson Employees
|Prize||Judged competition, e.g. best design, highest score, academic achievement, etc. or winnings from a raffle or drawing||Yes||Yes
Send to Accounts Payable for Emerson Employees and non-Emerson Employees with a W-9
Emerson College wants supervisors to find meaningful ways to recognize faculty, staff, and student workers while also complying with IRS regulations. (Note: Staff compensation concerns are best directed to Human Resources to ensure equity and adherence to the College’s compensation plan.) If you use tangible awards/gifts to recognize employees, you will avoid the “red tape” of reporting taxable income. College faculty and staff are, therefore, encouraged to reward employees and student workers with tangible property items, rather than gift cards or gift certificates. For example: Student A has done great work for a department all year long. To reward this performance, the department wants to express its appreciation to the student at the end of the academic year.
- Taxable: The department purchases a $20 Amazon gift card for the student. The department must submit a Gift Prize or Award Form to Payroll. The value of the gift card must be reported to Payroll. The student will owe taxes on the value of the card, diminishing its intended value.
- Non-taxable: The department purchases a $20 book from Amazon.com for the student. No Gift Prize or Award Form to file.
Responsible Officer: The Associate Vice President for Administration and Finance is the responsible officer for this policy. Questions relating to the implementation of this policy should be directed to the Associate Vice President for Business Services.