Taxability of Awards & Gifts Policy
Gifts, rewards or awards may be provided to Duke staff for work-related achievements and/or recognition, making special contributions and achieving major milestones such as years of service, promotion, departure or retirement. The expense for such gifts or awards must follow prescribed accounting and procurement procedures. The Internal Revenue Service classifies many awards to staff as taxable income subject to W-2 reporting and tax withholding.
- Purpose Statement
- Monetary Awards
- Non-Monetary Awards/Tangible Gifts
- Recognition Approval, Funding & Payment Guidelines
- Examples of Recognition
Recognition of staff for special accomplishments, career service, retirement or other "special" circumstances can enhance staff relations and reinforce desired behaviors. Recognition requires the presenter to make a personal effort to create a recognition opportunity with lasting value. This policy provides guidelines and procedures for recognizing staff contributions, establishing approvals, and identifying potential income tax and other financial implications.
These awards are intended to provide spontaneous recognition and praise of staff for achievements and work performance. These expressions for a job well done should be done personally by supervisors.
Monetary awards and cash equivalents are subject to personal income taxation. The recipient of the award or the awarding department/entity must cover tax liability. In addition, fringe benefit rates will be applied to the total transaction amount (gift plus gross-up, if applicable), creating an incremental cost to the issuing department. Utilization of gift certificates and other cash equivalents are discouraged due to transaction processing costs and additional financial implications for both the department and the recipient.
- A "cash equivalent" is any gift certificate, gift card or voucher that allows the purchase of or redemption for a product or service as if cash were being used.
- These may be purchased with the procurement card or reimbursed using the Miscellaneous Reimbursement Form following the Duke general accounting procedure under 200.021.
- Gift certificates
- Gift cards
- Savings bonds
Non-monetary awards/gifts should be held to a "de minimis" level so as not to result in tax liability for the staff member receiving the award. Gifts and awards of tangible personal property to staff members are "de minimis" when they (1) are awarded infrequently and (2) have an approximate fair market value that is not equal to or in excess of $100.
- Cups or mugs
- Food or food baskets
- Holiday turkey or ham
- Apparel (caps, shirts, sweatshirts)
- Trophies, plaques, or framed certificates
- Tickets (theater, sporting events)
Non-monetary awards/gifts can also include recognition that has a minimal monetary value but contains a level of emotional value.
- Letters of commendation
- Personal thank-you notes
1. Specific selection criteria for recognition awards shall be established and approved by the entity/school/department administration. Proposed recognition awards must be reviewed and approved in advance of purchase.
2. Funding of award/gift expenses is subject to Duke, state and federal guidelines applicable to accounting, budgeting, payroll and purchasing policies.
3. All gifts/awards must be approved, in advance of purchase, by a Dean, Director or Department Head.
4. The procurement card provides an efficient method for making allowable business related purchases. Purchases are charged directly to the department’s designated cost object, and Duke issues one monthly payment for all procurement card purchases.
6. Monetary awards—such as cash, gift cards, and gift certificates—received by staff members are taxable income to the recipient, regardless of the dollar value.1 In addition, fringe benefit rates will be assessed to the associated cost. Such purchases must be charged to 691800.
7. Gifts and awards of tangible personal property are generally considered non-taxable to the recipient unless the approximate Fair Market Value (FMV) 2 is clearly $100.00 or greater or the items are provided frequently.3 Note that the value of tangible personal property, by the nature of such items, may be difficult to estimate. These items must be charged to 693200.
8. For taxable gifts and awards, as defined in (6) and (7) above, the responsible department must provide the names and social security number or Duke unique identification number of each recipient to facilitate tax processing.
9. Sponsored Project (Grant) funds may not be used for general recognition of staff members. This should not be confused with "incentives" for individuals participating in Grant funded trials or studies. Incentives to Duke staff members participating in Grant funded trials or studies are allowable costs to Grants with Grantor approval. Gifts/awards purchased using sponsored funds will be subject to the documentation requirements detailed in (8) above regardless of fair market value.
- The IRS considers gift certificates and savings bonds to be cash equivalents and therefore includable in income, even if the property or service acquired with the gift certificate would normally be excludable.
- The Fair Market Value (FMV) of tangible personal property is the amount a staff member would have to pay a third party in an arm's-length transaction to buy that property. This amount will be determined on the basis of all the facts and circumstances. Generally the cost of the item will determine its FMV, however, discounts for bulk purchases, for example, may not be taken into account in determining FMV.
- Gifts or awards of tangible personal property for length of service or retirement are not taxable to recipients if the value is less than $400. These items may not be made within the staff member’s first five years of service nor more frequently than every five years.
Example of Ineffective Recognition
During the annual holiday party, the department head gave a speech to thank everyone for their great effort throughout the year and announced that each staff member would receive a $15.00 gift certificate. The staff were to sign for and pick up the certificates as they left the party and returned to work.
ANALYSIS: The gift certificate would be taxed and the applicable fringe benefit rates would apply to the total cost because the gift certificates are cash equivalents. Supervisors may have missed the opportunity to reinforce the intended message if they did not individually and personally thank each staff member. The memory and value of personally expressing thanks may be more impactful than the gift certificate.
Example of More Effective Recognition
In this department, the department head held a recognition luncheon and invited those who met the criteria established in the department recognition program plan. Each person received a monogrammed shirt that had a Fair Market Value of approximately $15 with a personal note from the department head and supervisor.
ANALYSIS: The $15 shirts were non-taxable since they were non-monetary awards under $100 in value. The personal notes and presentation was well received. The value of the gift may endure over time and provide memories each time the shirt is worn.
|Policy Number: 08.02