Administrative Regulation Title: Awards, Gifts, and Prizes
Regulation Number: 6.0.4
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Awards, gifts, and prizes are allowed to the extent the expense is reasonable and necessary to carry out the mission of the College. They may not be lavish or extravagant, and must comply with any funding source restrictions. Proper classification of payments is necessary to differentiate between those considered scholarships, which may be tax-free, and those that are awards, gift s, or prizes, which may be taxable.
Definitions:
- Awards: Cash, gift certificates, or noncash merchandise given for meritorious performance, productivity, or other reasons connected with employment; or for nonemployees, given in recognition of an accomplishment, achievement, or activity that does not require the performance of a service, as well as for other valid business reasons.
- Gifts: Noncash items of nominal value given to express appreciation or gratitude; not related to job performance and not negotiated in advance.
- Prizes: Cash or items of value received as a result of a legal game of chance, drawing, or contest of skill, either with or without the purchase of a chance or ticket.
Awards to Employees
Awards to employees, including student employees, are an acceptable practice and should generally not exceed $25 in value. However, the award may only exceed $25 in value if given as part of an established campus-wide program, or if approved by the President or designee.
In most cases, awards provided to employees will be reported as taxable compensation. This may include staff recognition awards, employee of the month awards, awards to boost employee morale, as well as awards originating with a gift to the College from a third party.
The award must be reported as employee compensation on the employee’s Form W-2 and is subject to federal, state, and local withholding, and FICA taxes. Since the award must be recorded through the payroll system, the department presenting the award must notify the payroll office unless the award qualifies for one of the exceptions below:
- Certain achievement awards of tangible property (not cash, gift cards, or gift certificates redeemable for cash) may not be reported as taxable to an employee if they are awarded in a meaningful presentation that emphasizes the purpose of the award. The value of the award funded by the College may not exceed $400 per year per employee. These awards and additional criteria are as follows:
- A “length of service” award is not reported as taxable if it is not granted to an employee more frequently than every 5 years. A retirement gift generally will not be reported as taxable if given as a “length of service” award and does not exceed $400 per year per employee.
- A “safety award” of tangible personal property is not reported as taxable so long as the award does not exceed $400 per year per employee and both of the following conditions are met:
- It is provided to no more than 10% of eligible employees; and,
- Managers, administrators, clerical, and professional staff are ineligible for the award.
- Noncash, de minimis awards are not reported as taxable to an employee unless readily convertible into cash. IRS regulations use the example of holiday gifts of property with a low fair market value to define “de minimis.” For College purposes, de minimis is defined as having a value less than or equal to $25. Awards of gift certificates of $25 or less will not be reported as taxable, unless redeemable for cash.
Awards to Nonemployees
Awards may be given in recognition of past accomplishments or activities as well as for other valid business reasons. Granting/awarding financial aid is not considered an award for purposes of this policy.
Awards to students that are related to academic performance are considered financial aid and, as such are not subject to the provisions of this policy.
Awards given to nonemployees are generally considered reportable as taxable income, regardless of value. Noncash awards to nonemployees that have little intrinsic value ($25 or less in value), such as medals, trophies, and plaques are not reportable. The College will file a Form 1099-MISC to report the awards when the value of cash and the fair market value of noncash awards to an individual total $600 or more in a calendar year. The taxpayer identification number (e.g., Social Security Number) must be provided for reporting purposes.
Gifts
To qualify as a gift, there should be no negotiation in advance for the gift. Cash, gift cards, and gift certificates redeemable for cash, are not allowed as gifts. Gifts should be of nominal value, and ideally, bear the College’s logo. Gifts of tangible personal property less than or equal to $25 in value are usually not reportable to the IRS.
- Gifts to Employees: In limited circumstances, flowers or other gifts to employees are allowed if approved by the President, or designee, and unrestricted non-operating funds or restricted gift funds approved for that purpose are used. Gifts-including those for birthdays, weddings, showers, and other personal events-are usually not allowable expenditures of College funds. At their discretion, co-workers may contribute personal funds for this purpose.
- Gifts to Nonemployees: Noncash gifts of tangible personal property may be presented as a token of appreciation to a donor, dignitary, guest, volunteer, visitor (or in certain circumstances, customer or client) when a valid and documented business purpose exists such as to recognize contributions to the College or to honor a distinguished visitor. Examples are token items given to donors or mugs given to conference attendees.
Prizes
Cash and noncash prizes may be awarded to individuals for participation in legal games of chance or contests of skill for the purposes of fundraising. Games of chance include raffles and drawings. These activities must be pre-approved and conducted under existing policies and Administrative Regulation Titles. Examples of contests of skill include an essay-writing contest or basketball shooting contest. In certain instances, the purchase of a chance or ticket may be required.
Prizes may be only awarded where benefits are expected to accrue to the College, such as a fundraising event or participation in a student activity. No prize may be awarded to a College employee except where the individual’s employment is incidental to the basis in which the prize is awarded. For example, a college employee would be eligible to win a prize awarded at random during an event or for winning an essay writing contest, provided the employee is eligible to participate in the contest.
The department or organization sponsoring the contest must maintain detailed records of all receipts and expenditures associated with the contest, including the winner’s name, address, taxpayer identification number (e.g., Social Security Number), amount spent for a chance or ticket (if any), and the value of the prize won. All contests associated with legal games of chance or skill must be conducted in accordance with state law. Federal law requires the College to report prize winnings to the IRS and to the recipient on a calendar year basis. Federal regulations also require that a specific percentage of the winnings must be withheld under certain conditions. Noncash winnings are reported at fair market value. Prizes of $600 or more that involve the purchase of a chance or ticket are reported on Form W-2G if the winnings are at least 300 times the amount of the chance or ticket. Prizes of $600 or more that do not involve the purchase of a chance or ticket are reported on a Form 1099-MISC if the recipient is not an employee. Noncash prizes given to employees having a value of $25 or less that do not involve the purchase of a chance or ticket will be considered de minimis and will not be reported. Prizes awarded to an employee that do not involve the purchase of a chance or ticket are reported on a Form W-2 for cash prizes (including gift cards), or noncash gifts over $25 value.
| Type | Recipient | Form used to Report to IRS & to Recipient | Cash, Gift Cards, & Gift Certificates Redeemable for Cash | Tangible Personal Property Other than Cash, gift cards, and gift certificates redeemable for cash _________________________ Less than or equal to or $400 in value per year | Tangible Personal Property Other than Cash, gift cards, and gift certificates redeemable for cash __________________________ Greater than $400 in value per year |
|---|---|---|---|---|---|
| Award | Employee | W2 | Reported as taxable | Not reported as taxable | Reported as taxable |
| Less than or equal to or $25 in value per item | Greater than $25 in value per item | ||||
| Award | Non-employee | 1099-Misc | Reported as taxable (1) | Not reported as taxable | Reported as taxable (1) |
| Gift | Employee | W-2 | Not Allowable | Not Reported as taxable | Reported as taxable |
| Gift | Non-employee | 1099-MISC | Not Allowable | Not Reported as Taxable | Reported as Taxable (1) |
| Prize (with purchase of ticket or chance) | Employee | W-2G | Reported as Taxable (2) | Not Reported as Taxable | Reported as Taxable (2) |
| Prize (with purchase of ticket or chance) | Non-employee | W-2G | Reported as Taxable (2) | Not Reported as Taxable | Reported as Taxable (2) |
| Prize (no purchase of ticket or chance) | Employee | W-2 | Reported as Taxable | Not Reported as Taxable | Reported as Taxable |
| Prize (no purchase of ticket or chance) | Non employee | 1099-MISC | Reported as Taxable (1) | Not Reported as Taxable | Reported as Taxable (1) |
NOTES:
- Reportable to the IRS and to the recipient on Form 1099-MISC when the aggregate value of cash and noncash items total $600 or more.
- Reportable to the IRS and to the recipient on form W-2G if $600 or more and at least 300 times the amount of the chance or ticket; subject to withholding if the amount of the winnings, less the amount of the chance or ticket, exceeds $5,000.
Awards, Gifts, and Prizes to Nonresident Aliens
Prizes and awards to nonresident aliens are generally subject to 30% federal income tax withholding and reported on an IRS Form 1042-S. You must contact the Business Office before processing cash or noncash awards, gifts, and prizes to persons who are not U.S. citizens or legal permanent residents.
Original Adoption Date: 2/10/15
Revision Date(s): 1/14/20
Date reviewed, no change: