Policy 5:23 - Awards and Prizes

Policy Contact: Accounts Payable Office

  1. Purpose

    This policy and its procedures set forth the protocols for the purchase and distribution of awards and prizes using University funds to ensure the University is in compliance with applicable IRS regulations.

  2. Policy

    1. Regardless of the cost of an award or its fair market value, the following awards are always taxable as wages to an employee and should be processed through the University Payroll Office to ensure proper reporting on IRS Form W-2:

      1. Cash or cash equivalent awards, such as gift certificates, gift cards, and gift coupons;
      2. Recognition awards, cash or non-cash, for job performance, such as employee of the month awards, unless they are qualifying de minimis;
      3. Non-cash prizes (unless de minimis) won by employees from random drawings at employer sponsored events;
      4. Achievement awards, cash or non-cash, that do not meet specific qualified plan award rules, discussed below; and
      5. Awards for length of service or safety achievement that do not meet specific requirements, discussed below.

      If a check is desired to be presented directly at an award ceremony, the payment may be run through Accounts Payable but will be reported to the Payroll Office for W-2 processing.

    2. Three (3) types of non-cash awards may be excluded from income, subject to dollar limitations, if specific requirements are met:
      1. Certain employee achievement awards;
      2. Certain prizes or awards transferred to charities; and
      3. De minimis awards and prizes.
         
    3. Employee achievement awards include items of tangible personal property (not cash) for length-of-service or safety. The following requirements must be met for achievement awards to be excludable:
      1. They must be given for length-of-service or safety; and
      2. They must be awarded as part of a meaningful presentation; and
      3. They cannot be disguised wages or made under conditions and circumstances that create a significant likelihood that they are disguised wages.
         
    4. The amount of the award that is excludable depends on whether the award is considered “qualified.” For the purpose of this policy, an award is a qualified plan award if it meets the following tests:
      1. The award is made under an established written plan; and
      2. The plan does not discriminate in favor of highly compensated employees; and
      3. The average cost of all employee achievement awards (qualified and unqualified awards for length-of-service and safety) made by the employer during a single year does not exceed four hundred dollars ($400). Awards of fifty dollars ($50) or less are not included in computing the average.
         
    5. Safety Achievement Awards
      1. An award will qualify as an excludable safety achievement award unless the following applies:
        1. It is given to a manger, administrator, clerical employee, or other professional employee.
        2. During the tax year, more than 10% of the employees, excluding those listed in 2.e.i.1. above have already received a safety achievement award, other than one of very small value. Eligible employees must have worked full-time for a minimum of one (1) year prior to the award.
           
    6. Length-of-Service Achievement Awards
      1. An award made for length-of-service may be excludable; however, it does not qualify if either of the following applies:
        1. The employee received the award during their first five (5) years of employment.
        2. The employee received another length-of-service award, other than one of very small value, during the same year or in any of the prior four (4) years.