Departments are encouraged to recognize employees for their contributions to the University. The Internal Revenue Code stipulates that the value of some awards must be included in an employee’s income and provides exclusions for other awards. The chart below sets out the tax treatment of various employee awards. Statutory support for the tax treatment is then provided, organized under the following categories: De Minimis Fringe Benefits, Length of Service and Safety Achievement Awards, and Qualified Employee Discounts. Questions on the taxability of awards should be directed to [email protected] or 612-624-1053.
|Occasional gift of personal property with value of $100 or less.*
|Gift of personal property with value more than $100. Exception: see length of service and safety awards.
|Occasional gift of tickets to a theater, lecture, or sporting event.*
|Season tickets to theatrical or sporting events, including University events.
|Occasional gift of coupon for specific item of personal property with value of $100 or less.*
|Coupon for specific item of personal property with value greater than $100. Exception: see length of service and safety awards.
|Occasional group meals or refreshments for employee recognition events.*
|Frequent group meals or refreshments.
|(Cash, gift certificates and gift cards are always taxable).*
|Cash, gift certificates, or gift cards of any value.
|Length of service/retirement award of personal property with cost not exceeding $400, given in recognition of retirement or length of service with a minimum of 5 years of service, and awarded as part of a meaningful presentation.**
|A retirement or length of service award that is awarded for less than 5 years of work, or not as part of a meaningful presentation is fully taxable. If the criteria under Nontaxable are met but award exceeds $400, the amount over $400 is subject to tax.
|Safety achievement award of personal property with cost not exceeding $400, given to recipient working in area where safety is an issue/concern, and awarded as part of a meaningful presentation.**
|A safety achievement award is fully taxable if recipient does not work in area where safety is an issue/concern, or when it is not presented as part of a meaningful presentation. If the criteria under Nontaxable are met but award exceeds $400, the amount over $400 is subject to tax.
|Discounts of 20% or less off sales price normally available to customers on purchases of University services.***
|Discounts of greater than 20% off the price normally available to customers on purchases of University services are subject to tax on the portion of the discount that exceeds the 20% discount – i.e. when a 25% discount is given, 5% of the service price is considered a taxable discount.
|Discounts up to the gross profit margin off sales price normally available to customers on purchases of University products or merchandise.***
|Discounts on University goods greater than the gross profit margin are subject to tax on the portion of the discount that exceeds the gross profit margin.
To report a taxable award, call the Human Resources Call Center at 612-624-8647 (4-UOHR) or in Greater MN 1-800-756-2363.
Departments offering taxable awards assume responsibility for ensuring accurate income tax reporting to their employees and assume the risk of fines and penalties for any failure to report taxable income. The University should not gross up an employees pay to cover any tax obligation related to an award.
Further Explanation of Employee Recognition Awards policy:
*Statutory Source of De Minimis Fringe Benefits:
IRC Section 132(e) excludes from gross income the value of any property or service that is so small as to make accounting for it unreasonable or administratively impracticable. In determining whether a benefit is de minimis, both its frequency and its value must be considered. An essential element of a de minimis benefit is that it is occasional or unusual in frequency. Additionally, the award must be either property or a service. Treasury Regulation 1.132-6(c) states that the provision of any cash or cash equivalent fringe benefit, such as a charge or credit card, is never excludable as a de minimis fringe benefit. Gift certificates or gift cards that are redeemable for general merchandise or can be used for a cash equivalent value are not de minimis benefits and are taxable regardless of the value. A certificate, card or coupon that allows an employee to receive a specific item of personal property that is minimal in value, provided infrequently, and is administratively impractical to account for may be excluded as a de minimis fringe benefit, depending on the facts and circumstances. The University of Minnesota considers an award of property or service with a value of $100 or less to be minimal in value. Gifts awarded to nonemployees may be taxable to the nonemployee. The value of gifts to nonemployees will be reportable by the University if the dollar value meets or exceeds $600 in a calendar year.
Examples of nontaxable de minimis benefits:
- Coupon for specific merchandise from U of M Bookstore (such as baseball cap, t-shirt, or pen set) occasionally provided in recognition of employee excellence: Employee may make choice of color and size of t-shirt when redeeming coupon, but the coupon may not state a cash value and the employee may not apply any cash value to purchase a more expensive item, nor choose a less expensive item and receive cash back.
- Coupon that can be redeemed only for choice of one type of item (at a specific business) occasionally provided to recognize special circumstances or employee excellence: Employee receives coupon for a free ice cream cone at specific ice cream shop. The employee may choose the ice cream flavor for the cone, but may not apply the value of the coupon to purchase a more expensive item.
Examples of taxable de minimis benefits:
- Any gift card or certificate redeemable at a store such as Target, Macy’s, or Cub Foods.
- Prepaid gift cards, such as American Express or Visa gift cards that may be used at any retailer accepting debit cards.
**Statutory Source of Length of Service and Safety Awards:
IRC Sections 74(c) and 274(j) indicate that gross income will not include the value of an employee achievement award received by the taxpayer if the cost to the employer when added to the cost for all other employee achievement awards made to a particular employee during the year does not exceed $400. If these requirements are met, the value of the awards may be excluded from income. To the extent a length of service or safety achievement award exceeds the $400 limitation, it will be subject to income tax for the recipient and must be reported through the Human Resources Call Center at 612-624-8647 (4-UOHR) or in Greater Minnesota 1-800-756-2363.
***Statutory Source of Employee Discounts:
IRC Section 132(c) excludes from gross income the value of certain discounts on products or services sold by the University to employees. To qualify, the discount must stay within specified limitations, depending on whether the discount is provided with respect to a service or a product. To the extent a discount exceeds the allowed limitations, it must be reported through the Human Resources Call Center at 612-624-8647 (4-UOHR) or in Greater Minnesota 1-800-756-2363.
Prepared by the University Tax Management Office, University of Minnesota, 612-624-1053 or [email protected]. Revised 3-30-2011.