[Moderate revision–posted 4/24/23 (replaces 9/14/20 edition)]
Operating Policy and Procedure
OP 69.02: Reporting Withholding Taxes on Employee Awards and Prizes
DATE: April 24, 2023
PURPOSE: The purpose of this Operating Policy/Procedure (OP) is to establish policy and procedure in compliance with federal regulations relating to the taxation and reporting of employee awards and prizes.
REVIEW: This OP will be reviewed in November of even-numbered years by the Chief Payroll Officer and the Associate Vice President for Human Resources with substantive revisions forwarded to the Senior Vice President for Administration & Finance and Chief Financial Officer.
1. General Policy
Generally, all awards, prizes, and gifts given to employees are subject to taxation and withholding pursuant to Internal Revenue Code § 74. Decisions on issues relating to awards, prizes, and gifts are based on Internal Revenue Service (IRS) rulings, which are subject to change. Current IRS rules will be followed, and they will supersede policies included in this OP.
2. Cash Awards, Prizes, and Gifts
a. Cash awards, prizes, and gifts to employees in any amount are considered wages subject to Federal Insurance Contributions Act (FICA) and federal income tax withholding and must be paid directly to the employee through Payroll & Tax Services.
b. Employee One-Time Payment System (EOPS)
An employee one-time payment should be submitted by the department paying the cash award through the EOPS system using earn code OTB (Other Taxable Benefit) or AWD (Award).
c. For employees who are U.S. citizens, permanent resident aliens, or resident aliens for tax purposes, applicable payroll taxes will be withheld established by the federal government (in accordance with Internal Revenue Code § 74 and § 3402, reg. 1.74 and 31.3402). For employees who are nonresident aliens for tax purposes, federal income tax will be withheld from the recipient's award at a flat rate of 30 percent, or current rate established by the federal government (in accordance with Internal Revenue Code § 1441). FICA will be withheld from the recipient's award at the applicable rate.
3. Cash Equivalent and Ticket Awards, Prizes, and Gifts
Cash equivalent awards, prizes, and gifts to employees in the form of gift certificates or gift cards are not permitted. Tickets for sporting, theater, or other entertainment events may not be given as awards, prizes, or gifts to employees.
4. Non-cash Awards, Prizes, and Gifts
a. Non-cash awards, prizes, and gifts to employees will be considered wages subject to FICA and federal income tax withholding, unless they meet the exception described in 4.b or qualify as de minimis fringe benefits as described in 4.c.
b. Awards or gifts given for length of service, including retirement, will not be subject to taxation, up to a $400 award/gift value (limited to one item). However, any other gift given to the employee within that tax year and the following four tax years will be subject to taxation. Awards for length of service can be made only once every five years and can never be given during the first five years of service.
c. A non-cash award, prize, or gift to employees valued at less than $100 may be considered a de minimis fringe benefit and not taxable to the employee. To be considered a de minimis benefit, the award, prize, or gift can only be given on an occasional basis. Payment of a non-cash award, prize, or gift valued at $100 or more is taxable compensation to the employee.
d. An employee one-time payment should be submitted by the department providing the non-cash award through the EOPS system with earn code MSC. The value is determined by purchase price unless the item has been personalized (inscribed). The value of personalized (inscribed) items is determined by fair market value.
e. For taxable non-cash awards, prizes, and gifts, it is the responsibility of each department to inform the recipient that federal income tax and FICA on the value of the gift will be deducted from the employee's regular pay.
a. Approval by (1) the appropriate vice president, provost, or vice chancellor, (2) Accounting Services, and (3) Payroll & Tax Services must be obtained in advance of purchasing a non-cash award, prize, or gift valued at $100 or more that is to be given to an employee.
b. Accounting Services will determine the appropriateness of the funding source for the purchase.
c. Payroll & Tax Services will determine the taxability to the employee and whether the employee will have regular earnings from which taxes may be withheld. Federal income tax and FICA will be withheld at the applicable rate.
e. Purchase or reimbursement of expenditure will be disapproved if it is for a gift certificate or gift card.
f. Purchase or reimbursement of expenditure will be disapproved if it is for a taxable non-cash award, prize, or gift and the employee will not have regular pay from which to withhold federal income tax and FICA.
g. Purchase of or reimbursement for awards, prizes, or gifts should not be processed through petty cash.
6. Funding Source
a. Employee cash awards may be made only from designated funds, current restricted funds, auxiliary funds, and foundation funds.
b. Awards paid from designated funds, current restricted funds, or auxiliary funds will be charged to the account under the “All Other Salary” (03) budget line. The related employer fringe benefit matching costs will be charged to the same account under the “Fringe Benefit” (07) budget line.
7. Right to Change Policy
Texas Tech University reserves the right to interpret, change, modify, amend, or rescind this policy, in whole or in part, at any time without the consent of employees.
04 Audit Services
30 Academic and Student Affairs – General
32 Academic Policies – Faculty
34 Academic Policies – Students
36 Academic Programs
40 Equal Opportunity and Affirmative Action
48 Communication Services
52 Information Technology
60 Environmental Health and Safety
61 Facilities Management
62 Financial and Accounting
63 General Services
64 Graduate Programs (Faculty and Students)
65 Research Accounting
67 Mail Services
68 Communications and Marketing
69 Payroll and Tax Services
70 Human Resources
72 Purchasing, Contracting, and Payables
77 Student Services and Registrar
78 Traffic and Parking
Operating Policies & Procedures
AddressTexas Tech Downtown Center Room 218