Guidelines for Employee Prizes, Gifts, and Awards

Prizes, gifts, and awards, when given to employees, are generally subject to Federal Income, Social Security, and Medicare tax withholding. The Internal Revenue Code states that when prizes, gifts, and awards are given to employees, the value of the item represents taxable income to the employee unless the item is considered "de minimis." Failure to comply with the intent of the Internal Revenue Code could result in Concordia College incurring substantial tax and penalty assessments in the event of an IRS audit. The frequency with which such items are given is also a key factor.

The IRS defines "de minimis" as follows:

• The value of the item is nominal; and
• Accounting for the item would be administratively impracticable; and
• The item is furnished for the purpose of promoting health, good will, contentment, or the efficiency of employees; and
• The item is infrequently given.

To ensure institutional consistency and compliance with the intent of the Internal Revenue Code, the following are the guidelines that should be applied:

• Cash and Gift Certificates redeemable for cash: prizes, gifts, and awards in the form of cash or gift certificates redeemable for cash, regardless of the dollar value, will be considered taxable income to the employee.

• Gift certificates or coupons not redeemable for cash:  prizes, gifts, and awards in the form of gift certificates with an individual or combined value of $50 or less and no cash surrender value will not be considered taxable income to the employee. Food will be considered a specific tangible item; therefore, gift certificates for restaurants and other food coupons, etc., are included in this exception. The gift certificate must clearly state that the certificate has no cash surrender value. Theater and sporting event tickets will also be included in this exception.
  

• Tangible Property: prizes, gifts, and awards in the form of tangible property such as flowers, trophies, plaques, artwork, etc., will be considered taxable if the individual or combined value of items is greater than $100.

Exception: Non-cash tangible awards, such as plaques and trophies, that are presented at graduation and other special ceremonies recognizing academic achievement, will not be taxed if the value is less than or equal to $250.

• Length of Service or Safety awards:  Non-cash awards given to an employee for length of service or safety achievement are excluded from taxation up to $400 per calendar year. To be excluded from taxation the award must be given as part of  a meaningful presentation and under circumstances indicating that it is not a disguised form of compensation. Length-of-service awards are not exempted from taxation if the employee has been with Concordia College for less than five years or has received an award during the current or preceding four years. Safety achievement awards can apply only to jobs involving substantial safety risk and can be given to no more than 10% of employees.

Please contact Kim Walerius in the Payroll Department at 299-3328 if you have any questions in the application of the above guidelines and to receive guidance on how to submit a request for payment if the item is taxable.