Taxability of Prizes, Gifts and Awards

Overview

In accordance with Internal Revenue Service (IRS) regulations, payments made from College controlled funds or items of value given to employees are considered compensation subject to federal, state and employment tax withholding, and reporting on Form W-2 unless a specific exemption applies.

Please note: IRS regulations consider gift cards and gift certificates to be the same as cash and are required to be included as employee compensation and taxed accordingly when given to an employee regardless of the value of the gift card/certificate.

The information below provides guidance regarding the taxability of gifts, prizes and awards to employees and ensures that proper communication is provided to the employee at the time of receipt and the College is in compliance with federal and state tax laws and regulations.

Definitions

  • Award - A cash or non-cash item given to show thanks, support, goodwill or recognition of an outstanding accomplishment. Cash and non-cash items could be given in recognition of achievement in teaching, research, retirement or other job performance related activity including length of service milestones.
  • Gift - A cash or non-cash item given as a gesture of goodwill, appreciation or in recognition of or in connection with a holiday season or some other purpose not specifically related to regular job performance.
  • Prize - A cash or non-cash item given at random or as a result of chance and not directly related to job performance. Examples include door prizes and raffles at College sponsored events.
  • Non-Cash Items - A gift of property (a tangible item). Per IRS regulations gift certificates and gift cards are considered cash equivalent and taxed the same way as a gift, prize or award of cash.
  • De Minimis - A non-cash gift, prize or award that is so small that accounting for it would be unreasonable or administratively impractical. De minimis gifts, prizes or awards may only be provided on an occasional basis and must be small in amount. Only non-cash gifts of tangible items with a value of $100 or less are considered de minimis. Cash awards, gift cards and gift certificates are never considered de minimis.

Procedures

All payments made from Gettysburg College controlled funds or items of value given to employees are considered compensation and are subject to federal, state and employment tax withholding and reporting on Form W-2 unless a specific exemption applies. Payments to non-employees may also be subject to tax reporting under certain circumstances. College procedures and IRS-required tax treatments for gifts, prizes and awards are summarized in the six categories below:

Gift Cards/Certificates as Gifts, Prizes and Awards to Employees

Gift cards and gift certificates given to employees as gifts, prizes and awards are considered wages and are always reportable as taxable compensation regardless of the dollar amount. The cash gift, prize or award must also be included in the employee's year-end Form W-2 or the equivalent tax form for non-resident aliens.

Gift cards and gift certificates may not be purchased with a College purchasing card. Gift cards and gift certificates may be purchased by an employee and reimbursed with College funds. The reimbursement request must include a list of all gift cards/certificates, their values, the name of the individuals receiving the gift cards/certificates and their employee identification number. The Accounts Payable office will provide the Payroll office with the information and the value of the gift card/certificate will be included on the employee's next pay stub and the appropriate taxes withheld.

Employees Participating in Gettysburg College Research Studies

From time to time Gettysburg College employees participate in research studies as research study subjects. IRS regulations allow employees participating in research studies to be compensated outside of the payroll system for this as long as the nature of the activity performed by the employee is separate and distinct from the responsibilities of their position with the College.

Non-Cash Gifts Valued at Less Than $100

A gift, prize or award may be considered a de minimis fringe benefit and not taxable compensation to the employee if:

  1. It is a non-cash gift of property or service such as food, flowers, etc;
  2. It is valued at $100 or less; and 
  3. It is given only on an occasional basis.

Non-Cash Gifts Valued at More Than $100

Except for qualifying length of service awards (see section below), any non-cash gift, prize or award valued at more than $100 must be reported. A department considering giving a non-cash gift, prize or award to an employee that is over $100 should contact the controller so that the employee is taxed appropriately.

Employee Length of Service Awards

Special IRS regulations apply to non-cash awards based on an employee’s length of service with the College. A length of service award may be excluded from the employee's income if specific criteria are met, including:

  • Award cannot be a disguised wage
  • Must be awarded as part of a meaningful presentation
  • Must be an item of tangible personal property
  • Must have a fair market value of less than $400

Gift Cards/Certificates and Tangible Items to Non-Employees and Students

Gift cards and gift certificates may be used to recognize non-employees who provide special services to the College. Guest speakers, hosts and sponsors of events at other Institutions are just a few examples. The College is required to report these awards to the IRS if the amount of the award to any single individual exceeds $600 in a calendar year.

Gift cards and gift certificates may not be purchased with a College purchasing card. Gift cards and gift certificates may be purchased by an employee and reimbursed with College funds. The reimbursement request must include a list of all gift cards/certificates, their values, the name of the individuals receiving the gift cards/certificates and a W-9 for any non-employee receiving a gift card/certificate of $250 or more.

Gift cards/certificates may be awarded to students (including student employees) if the prize, gift or award is related to their field of study. If the prize, gift or award is related to their role as a student employee then the prize, gift or award is taxable as compensation (see first section).

If gift cards/certificates or tangible items totaling more than $600 are received by a student or non-employee during the calendar year the College is required to send the individual a 1099 and the individual is required to report this as income.

Contact

Contact Sharon Dayhoff, Director of Financial Services/Controller with questions at sdayhoff@gettysburg.edu.