Employee Awards, Gifts and Prizes
|Effective:||02/12/19||Approved By: Senior Associate Vice President for Financial Affairs and Chief Financial Officer|
For Assistance Contact: Director, Payroll Management Services
The purposes of this guideline are to: (1) provide guidance for the appropriate presentation of awards, gifts, and prizes to employees (including student employees) by The University of Texas at San Antonio (UTSA) in accordance with federal laws and regulations, and (2) ensure appropriate communication to the employee when the gift, prize or award is received.
For information on gifts to employees from outside entities (e.g. vendors, corporations, organizations) see HOP1.33.
Information on gifts to UTSA is provided by HOP9.23 and fmog.0403.utsa.
Table of Contents
- Appropriate Use of UTSA Funds
- Inappropriate Use of UTSA Funds
- Allowed Funding Sources
- Disallowed Funding Sources
- Determining the Monetary Value of a Tangible Non-cash Award
- Taxability of Awards
- Approving, Recording, Tracking and Reviewing Awards
- Awards Funded by Third Parties
- Processing Award Payments and Reimbursements
In this guideline, the term “awards” includes awards, gifts and prizes provided by UTSA to employees (including student employees), unless otherwise noted.
UTSA supports the recognition of employee service and performance through the use of awards when appropriate. These may be provided to UTSA employees in the form of cash, cash equivalents or tangible items.
Awards should be appropriate for the circumstances for which they are awarded.
Internal Revenue Service (IRS) regulations are intended to ensure that employers do not avoid taxation of employee compensation by referring to a payment as an award. Consequently, all cash and cash equivalent payments to employees are considered compensation and subject to taxation unless a specific exemption applies.
The information in this guideline is provided as a guide for understanding UTSA procedures for processing employee awards. It is not intended to be tax advice, nor does it guarantee the tax consequences of any award to an employee.
Note: The University Excellence Awards and the President's Distinguished Achievement Awards are handled separately. Once the winners are finalized, the Provost Office and Human Resources work directly with Payroll Services on the taxability and issuance of checks.
All employees are responsible for the appropriate use of UTSA funds and compliance with this guideline. Oversight for compliance with this guideline is required at the supervisor, Department Manager and senior administration level.Supervisors, Department Managers and other administration-level employees are responsible for:
- Ensuring that awards are issued in conformance with established guidelines, including ensuring that expenses incurred are appropriate for the funding source;
- Maintenance of appropriate records; and
- Determines if recipient should receive the full award or net of applicable taxes.
- Completion and submission of the Business Expense Form (BEF).
- Determines and notifies the awarding department of the taxability of awards;
- For taxable cash awards, notifies the awarding department of the required withholding amount, or the “grossed–up amount” to be charged to the department if the department chooses to present a check for the entire award amount (see Taxability of Awards);
- For taxable awards, records the amount to be included in the recipient's Form W–2
- Ensures payment requests contain appropriate approval; and
- Processes awards in accordance with IRS regulations.
- Ensures appropriate approval for purchases of awards;
- Processes reimbursements and purchases in compliance with this guideline; and
- Coordinates as required with Payroll Services.
- Selected for an official employee recognition award program for which there are clearly defined nomination and selection procedures;
- Marking the achievement of a major departmental goal or other extraordinary work-related accomplishments; or
- Honoring a retiree or an employee who is leaving UTSA with at least five years of service (see section on Employee achievement awards below).
- Length-of-service awards (see section on Employee achievement awards below) presented after the employee has been employed by UTSA for at least five years, or presented in five-year increments.
- Safety achievement awards (see section on Employee achievement awards below).
- Prizes (if de minimis), such as drawings for door prizes at UTSA functions.
UTSA funds may not be used to purchase gifts for occasions such as birthdays, bridal/baby showers, farewells (except as specified in section C.1.), holidays or anniversaries. Departments can only provide gifts for those occasions if the gifts are paid for by other employees without use of University funds.
- Official-Occasions Cost Centers are sourced from interest earnings, and are authorized for the payment or reimbursement of employee award expenses. For more information on Official-Occasions Cost Centers see fmog.0701.utsa.
- Official University Employee Awards Cost Centers that are managed by the relevant departments.
- Auxiliary Enterprise funds.
- Designated fee-funded Cost Centers are only appropriate if the expense is included or inferred in the fee justification.
- Gift funds that contain restrictions may be used for awards only if the purpose is in compliance with the terms of the restricted gift. Care must be taken to ensure that the use of gift funds does not violate the donor's intent.
- Grant funds are only allowed if the terms of the grant specifically authorize the expense as approved by the applicable RSC.utsa.
- Educational and General funds.
- Cost Centers funded by designated or differential tuition.
- Federal grant funds unless specifically authorized by the award terms and approved by the RSC.
The monetary value of a tangible (non-cash) item is based on its fair market value (FMV) at the time of transfer to the employee. The FMV is the amount an employee would have to pay a third party in an arm's-length transaction to obtain the award. An item's FMV must be substantiated for compensation and taxation reporting purposes, and relevant documentation must be attached to the Business Expense Form (BEF):
- If the department purchases the award, the original receipt of the item purchased serves as proof of its FMV. NOTE: Do not use One Cards (University credit cards) to purchase employee awards.
- If the department does not purchase the item – for example, the item is given to UTSA, which in turn awards the item to an employee – a reasonable assessment of value must be made using one of the following methods:
- Providing proof of value or price of an item of the same model matching the description of the award. An internet search of the item depicting the description is sufficient.
- For a unique award, the value or price of a closely similar item based on an internet search is sufficient.
Unless a specific exemption applies, the value of an award given by an employer is taxable to an employee as wages, included on the employee's Form W–2, and subject to payroll taxes and income tax withholding.
Regardless of the cost of an award or its FMV, the following awards are always taxable as wages to an employee:
- Cash and cash equivalents;
- Recognition awards for job performance (e.g., employee of the month, outstanding customer service) unless the awards qualify as de minimis fringe benefits;
- Awards for length-of-service or safety achievement that do not meet the requirements for excludable treatment (see section on Employee achievement awards below); and
- Prizes purchased with university funds (unless de minimis) won by employees from random drawings at UTSA-sponsored events.
Cash awards and “grossed-up” wages to pay for the employee's share of taxes are subject to a flat rate withholding (currently 22%, depending on the particular circumstances) as supplemental wages.
A cash award can be issued to the employee net of applicable taxes, or UTSA can pay the employee's share of taxes and issue a check for the full award amount. Taxes paid on behalf of the employee generate additional income to the employee.EXAMPLE
|Net cash award||Grossed up cash award|
|Income tax withholding||$22.00||$31.27|
|Social Security/Medicare tax||$7.65||$10.87|
|Check issued to employee||$70.35||$100.00|
|Income included on Form W–2||$100.00||$142.14|
The following items can generally be excluded from income if they meet specific requirements and limitations:
A de minimis fringe benefit must meet all of the following conditions:
- It is not cash or cash equivalent;
- It is of nominal value (if the other de minimis criteria are met, UTSA treats benefits of less than $100 as de minimis); and
- It is provided infrequently (awards that are given frequently to an employee do not qualify as an excludable de minimis fringe benefit, even if each award is small in value).
- Plaques, coffee mugs, etc.;
- Theater or sporting event tickets worth less than $100 in total (however, season tickets are not excludable); and
- Flowers, candy or fruit baskets.
If a benefit does not qualify as de minimis (for example, it exceeds the de minimis value), the entire award is taxable.
Non-cash awards for length of service or safety are generally excludable from income if they meet the definition of an employee achievement award and fall within specific limits.
- Must be awarded as part of a meaningful presentation; and
- Must be a tangible item. It cannot be cash, cash equivalent, vacations, meals, lodging, theater or sports tickets, stocks, bonds, or other securities.
Meaningful presentation: An employee achievement award must be presented as part of a special event or celebration that marks the occasion, such as a departmental meeting, party or luncheon. An effort should be made to give length-of-service/retirement awards during the year the anniversary or retirement occurs. Departments or schools should ensure that special presentation events are conducted only on an occasional basis and that the costs for the events are reasonable.
- The employee has been employed by UTSA for at least five years; or
- The employee has not received another length-of-service award during the same year or in any of the previous four years.
- Are not given to a manager, administrator, clerical employee, or other professional employee; and
- Have not been given to more than 10% of UTSA employees (excluding those listed above) during the tax (calendar) year.
- $400 for awards that are not qualified plan awards, or
- $1,600 in total for all awards (whether qualified plan awards or not).
- It is made under an established written plan;
- It does not favor highly compensated employees; and
- The average cost of all employee achievement awards (both qualified and non-qualified awards for length of service and safety) made during a single calendar year does not exceed $400.
EXAMPLE: During a calendar year, UTSA presents length-of-service awards to six employees for a total cost of $1,800. The average cost of all awards is $300 ($1,800/6). Since the average cost of all awards does not exceed $400, the awards are considered qualified plan awards provided there is a written plan that does not favor highly compensated employees. Deans / Directors / Vice Provosts / Vice Presidents are responsible for ensuring that award programs at different levels within their organization comply with IRS requirements for nontaxable awards, as applicable.
If UTSA incurs no substantial additional cost by offering services to employees, the services are generally excludable from income. To determine whether UTSA incurs any substantial additional cost, include foregone revenue as a cost but disregard any amounts paid by the employee. No-additional-cost services occur mainly in industries that have occasional excess capacity, such as recreational facilities not rented.
EXAMPLE: Tickets awarded to a UTSA employee for a UTSA sporting event if the event did not sell out. No-additional-cost services made available to highly compensated employees are not excludable unless the services are made available on substantially the same terms to all employees, or to a group of employees defined under a reasonable classification that does not favor highly compensated employees.
Employee discounts on services of up to 20% of the price charged to the general public are generally excludable from income. EXAMPLE: A $100 UTSA football game ticket is sold to an employee for $80. The discount is $20 ($100 - $80) and is therefore excludable from income because it is not more than 20% of the regular price ($20 / $100 = 20%). This discount is excludable from income whether or not the game is sold out.
Employee discounts on merchandise are limited to the price charged to the general public for the item multiplied by the gross profit percentage on all goods sold during the previous tax (calendar) year. EXAMPLE: During the previous tax year UTSA sold 1,000 T-shirts at $20 each for total sales of $20,000. UTSA paid $15 for each T-shirt, for a total cost of $15,000. The gross profit from T-shirt sales is $5,000 ($20,000 sales - $15,000 cost), and the gross profit percentage is 25% ($5,000 gross profit / $20,000 sales). The maximum employee discount on T-shirts is $5 (25% gross profit percentage x $20 selling price).
A discount cannot be excluded from the wages of highly compensated employees if the discount is not available on substantially the same terms to all employees, or to a group of employees defined under a reasonable classification that does not favor highly compensated employees.
- Approval is to be documented using the Business Expense Form (BEF). Awards valued below $100 require approval from an Assistant/Associate Vice President or Assistant/Associate Dean. Awards valued at $100 or more require approval from a Vice President, Dean, or the President. Employees cannot approve their own (or their superiors') requests for award expenses.
- If multiple awards are disbursed to employees, the department must maintain and attach an Award Log of all awards (taxable and nontaxable) that have been issued. The log must include:
- Recipient name
- Issue date
- Amount (if cash), or item description and FMV (if non-cash).
- The log must be reviewed periodically to determine whether recipients have been issued multiple de minimis awards with a total value of $100 or more during a single calendar year.
- If the department discovers that a specific employee has received multiple de minimis awards totaling $100 or more during a single calendar year, the department must email Payroll Services no later than November 15th and provide the following:
- Recipient name
- Issue date for each item
- Purpose for each item
- Description and FMV for each item
- Total value for all items.
- The Director of Payroll Management Services will determine if the items are taxable and therefore reportable and will notify the submitting department.
- If it is determined that the items are taxable, the total of the items' values will be considered taxable and reportable as wages.
If funds for awards are provided by an outside party (e.g., a sponsor) to UTSA, which subsequently awards them to an employee, the award is taxable in the same way as if provided directly by UTSA. If the funds are turned over to UTSA to select and distribute the items, UTSA is responsible for withholding applicable taxes.EXAMPLES:
- A bank provides funds to UTSA to support a special performance award program. UTSA chooses the recipients and distributes the awards. The value of the awards are additional compensation to these employees and reportable on their Forms W-2, subject to payroll taxes and withholding. This applies even if the outside party is a nonprofit organization or an educational foundation.
- A television is donated by a business to UTSA and is awarded through a random drawing to an employee. The FMV of the television is considered taxable wages to the employee. Prizes in a random drawing of employees are considered wages unless a specific exemption applies.
- If an outside party selects and distributes an award directly to a UTSA employee without any direction or decision making from UTSA, the award is income to the recipient and must be reported. The outside party is required to furnish a Form 1099-MISC to the recipient if the total amount awarded to that individual is $600 or more in a calendar year.
The departmental procedure for employee awards is below:
- Confirm that the designated recipient is eligible for the award in accordance with this guideline
- The department determines who will incur the cost of any applicable taxes
- Complete and approve the BEF:
- Cash Award (check) will be given to employee by the department. Attach the approved BEF to a completed eForm and submit the approved eForm to Payroll Services at least 10 business days before the planned presentation of the award
- For non-cash awards, send the approved BEF to Payroll Services at least 10 business days before the planned presentation of the award
NOTE:Payroll Services determines the taxability of awards and adds the taxable amount (if any) to the recipient's next pay check. For non-cash awards, Payroll Services forwards the BEF to DTS, and DTS contacts the department to coordinate the reimbursement or purchase.
- Coordinate with DTS for the reimbursement or purchase of non-cash awards
NOTE: One Cards are not to be used to purchase employee awards.
- Present the award to the employee as part of a meaningful presentation if the award is for length of service/retirement or safety.
|06/19/20||DTS now receives mail daily, and departments are to email invoices to DTS (section A). Hyperlinks, position titles and other editorial updates throughout.|
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